The Do’s and Don’ts of Rental Application Fees

Just like in other businesses, there are best practices to follow in the rental industry. When it comes to rental application fees, there is a process to adhere to, just as with other aspects of finding, selecting, and signing a lease with a new tenant. You may be wondering what the rules are regarding application fees, whether you are required to order a screening report, and what to do in the case of multiple tenants in one unit.

You’ve come to the right place. In this article we cover the do’s and don’ts of collecting application fees and what to consider during the process of accepting these types of fees.

Do's and don'ts to keep in mind

Here are some tips for best practices when collecting rental application fees:

• Do be upfront that you charge an application fee as part of your screening process.
• Do include the exact fee amount on the rental application, and keep a signed copy for your records.
• Do mention that the fee is non-refundable (check with your state and local housing regulations first).
• Do run tenant screening reports once you've accepted a rental application. Note that the screening fee charged by a service such as SmartMove is not the same thing as an application fee.
• Do return an application fee if you reject an applicant before running a credit report.
• Don't accept an application fee from a prospective tenant that you aren't seriously considering.
• Don't use rental application fees as a source of revenue. Not only is it a bad business practice, many states prohibit fees beyond the cost of screening.
• Don't set a fee without checking with your state and local housing regulations. Some states limit or prohibit rental application fees and are specific about a landlord's obligation when collecting these types of fees. For example, in some states, the maximum screening fee a landlord can charge is $35 and they must provide an itemized receipt.

What is the average rental application fee?

According to RentPrep, the average rental application fee is $25 per applicant. Depending on which state you live in, you may be able to charge a market-based rental application fee. However, many states limit the amount you can charge. The Spruce gives $30-60 as a reasonable tenant application fee in its advice to renters, depending on state law.

Can co-applicants and roommates be charged as well?

In the case of multiple applicants, the landlord can and should order screening reports on every adult (including grown children) who will reside on the property. If you screen only the primary applicant, you may run into trouble if a co-applicant stops paying rent or moves out suddenly.

You'll likely have a higher chance of receiving rent on time if everyone living in the unit meets your financial criteria. You'll want to be sure that you don't miss a prior eviction, relevant criminal record or low credit score that may only show up on one person's report.

Should you charge renters a screening fee?

It can be difficult to decide whether you should charge application fees for every applicant, or only charge your top candidate. Some landlords collect applications and a fee, and process them in the order they are received. The better practice is to only collect application fees on those you intend to screen. Some landlords offer to apply the rental application fee to the first month's rent, if a tenant meets all of the screening criteria.  

Are there instances where you may not want to charge an application fee? Yes, but keep in mind if you don't accept an application fee, you run the risk of spending time (and money) on an applicant that isn't truly interested or who doesn't meet your screening criteria. If you know that a prospective tenant won't qualify based on their rental application form (for instance, they don't meet your income requirements), then it doesn't make sense to accept an application fee or order screening reports. 

Whether or not you choose to charge a tenant application fee, it's critical to conduct a credit, criminal and eviction history check before accepting a new tenant. TransUnion SmartMove tenant screening lets landlords choose who pays, making it easy for landlords to avoid the hassle of collecting a screening fee. Landlords can simply choose to have the renter pay for their screening directly through SmartMove, and the reports are delivered in minutes.

Tenant application fees as a lead qualification tool

Application fees can help to narrow down your list of qualified renters. Most potential renters who aren't really serious about the property or who know they won't meet your screening criteria, whether it be due to a low credit score, criminal record, or past eviction, might be dissuaded by paying a screening fee. Be upfront about your expectations and the application fee in the rental advertisement and when showing the property. Outline your financial requirements, such as a 3:1 income to rent ratio and/or minimum acceptable credit criteria, in your rental ad copy and reiterate this when you schedule a face-to-face meeting.  

Conclusion

Application fees help you cover the cost of screening, but perhaps more importantly, help you to determine which prospective tenants are serious about your property. An applicant that is just browsing (or who knows you will find something negative on a credit/criminal history report), is less likely to send you on a wild goose chase if it's going to cost them money. 

TransUnion SmartMove is the landlord's solution for great reports, great convenience, and great tenants. Landlords receive a tenant credit report formatted exclusively for rental screening, a criminal report drawing from millions of criminal records, an eviction report, a ResidentScore, and an Income Insights report. Renters get the peace of mind that only TransUnion, and not their landlord, will have access to their sensitive personal information.