Landlords are generally allowed to pass the costs of tenant screening on to rental applicants. There are a couple of rules to keep in mind:
- You may find that your state regulates application fees, so it’s important to check the law in your area. You may be limited to only the price of the reports, or to a specific maximum amount, but that amount usually is enough to check tenant credit and run other necessary reports.
- Landlords are not allowed to profit by charging fees significantly higher than the cost of tenant checks, or by refusing to refund unused fees. If you collect the fees from an applicant, but decide not to run the reports, you will need to return their money.
Communication is important when it comes to collecting these fees. Be clear with applicants about how much you charge, and what the money is for. A good place to do this is in the rental application, or a separate notice if that’s required in your state.
Be upfront with candidates before accepting the application fee. If there is little chance they will qualify, let them know so they can decide whether they want to take the risk.
Because it’s a hassle to collect fees from multiple applicants, then return the unused fees, spend some time asking preliminary questions of candidates to weed out those who are not qualified.
It’s always a good idea to explain to applicants what information you will be seeking when you run tenant background checks. That gives them the opportunity to disclose problems or offer explanations that may be useful in evaluating the candidate.
Some landlords prefer to accept only cash for the application fee. That way, they know for sure that the payment will be honored. However, by accepting cash, you miss an important opportunity. Accepting a check from the tenant allows you to cross-reference banking information, name, and address with other reports. This may be the best time to catch a problem tenant before you turn over your property.
Charge the same fee to each applicant you consider. If you accept fees from multiple candidates, create a hierarchy, like first to apply, then go down the list until you have chosen a tenant. Once that candidate confirms, refund any fees to remaining candidates if you didn’t run tenant checks.
By the way, you don’t have to call it an “application” fee. Renters may have a higher comfort level paying a “tenant screening” fee.