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There’s no requirement to have a rental application fee, but many landlords choose to charge applicants to cover tenant screening or other application-related expenses. However, if you own just one property, are subletting, or are searching for a roommate, you may decide not to charge anything. Additionally, depending on your state, there may be limits as to how much you can charge in rental application fees.
Before going any further, it’s important to be clear about what we mean by a rental application fee. This is the fee you charge when someone applies to live in your unit. You use the amount to cover the costs of processing the application, such as for a background check. You may also use some of the funds to cover soft costs involved in running the background check, like time spent on admin.
Some landlords worry that charging a fee just to be considered as a tenant could be a deterrent. You should, however, only apply the fee for tenants you are seriously considering. Because of this, it’s a good idea to have a prescreening questionnaire to efficiently filter out any unqualified tenants.
Read about what makes a good rental property and ensure yours meets all the criteria.
The average rental application fee is between $25 and $30, but up to about $60 is still reasonable. Landlords who own units in more expensive neighborhoods where there is high demand for properties often charge at the upper end of this range. It’s rare for landlords to charge much less than the average, though, since this won’t cover the costs of a background check in most places.
In some markets, you may find rental application fees as high as $200 — especially in desirable neighborhoods with limited units. However, you should be aware that the laws in your state may not permit you to use market-based fees. For example, in New York City, rental application fees cannot exceed $20.
The basics of rental application fees are quite straightforward. However, there are some best practices and regulations for these landlord fees that you need to be aware of.
Find out if there are any limits set by local councils or your state on the amount you’re allowed to charge for a rental property application. Some states have no limits, whereas others have a maximum. This maximum may be a set amount, it could relate to the amount you charge in rent, or you may need to stay within the out-of-pocket costs you incur for the background check. In the latter case, you may need to return any unused funds to the applicant, although the application fee is completely non-refundable in most states.
It’s important to let potential tenants know that you charge rental application fees. You should tell applicants about the fee as part of the application and screening process. Never expect applicants to know that there will be a fee, as they may have viewed other units that didn’t require any payment. Telling them at the last minute (or only including the information in the application document) could make you appear untrustworthy and deter a tenant from wanting to rent from you.
Tell applicants exactly how much they’ll need to pay in application fees for the apartment and what you’ll use the funds for (this is particularly important if background checks are expensive in your area). Make sure the fee is included in the rental application that potential tenants submit, and keep a copy of this document. Finally, explain any extra terms and conditions, such as whether applicants can request a copy of their background check.
You should mention in the rental application whether fees are refundable, even if this is decided by state law. At most you’ll refund the amount you don’t end up using for the screening. You will also need to offer a rental application fee refund if you decide to reject a tenant before you run a background check. Make sure you also clarify that the fee is nonrefundable if a tenant withdraws their application.
You should never take a fee from any applicants whom you are not seriously considering as tenants. Rental application fees are not intended to be an extra source of income for landlords. Many states prohibit the practice of charging more than you need for background checks.
Some states have additional regulations that go beyond how much you are allowed to charge for a tenant application fee. This includes a few states that do not allow you to charge a rental application fee at all. Other states require that you provide applicants with an itemized receipt that shows how you spent the funds. Finally, you may be prohibited from charging an application fee if the unit is currently unavailable.
You can now collect and manage tenant applications in the Landlord Studio system. Our system allows you to create your rental listing, set up a prescreening questionnaire, and easily run background checks on the most qualified applicants with a few quick taps.
Our solution is to use a tool designed specifically for landlords like you. Landlord Studio allows you to manage your tenants and accurately track your income and expenses in real-time from any device. The tool simplifies bookkeeping by connecting your bank feeds to populate financial information and generating professional reports for you. In addition, you can create rental listings, collect and manage applications, and screen potential tenants all within the tool.
Laura is a freelance writer and editor who specializes in advice for small business owners. She has written extensively on all kinds of real estate topics.
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