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First Rate Property Management Blog

Are Landlords Profiting from Application Fees?

Recently, a local news station ran a story about high application fees, and asks, "Are Landlords unfairly profiting off Treasure Valley affordable housing crunch?"  This prompted a number of inquiries to me asking if it's true.  "Yes", I believe some are, which I explain below, but I do not think the majority are.  The news story reported that some Landlords are charging as much as a $200 per application.  Wow, that certainly seems high to me, so I have to believe that includes more services that were not mentioned.  The application process has gotten a lot more technical than what it was 28 years ago when I first started.  Due to poor screening, many Landlords got burned by poor quality tenants. As the screening became more detailed, some Landlords got sued for discrimination.  I believe it is these two factors that opened the doors to a new market for third parties who specialize in tenant screening to help Landlords find qualified tenants, yet comply with laws, to include Fair Housing Laws.  This is when costs went up. 

Who is not profiting:

First Rate Property Management charges a $40 application fee and utilizes a third party company to run:  a credit report with a FICO score, a national criminal search, an eviction search, collects current and former rental history, verifies employment, and verifies income.  At this point, 80% of the application fee has been spent on third party charges.  Then that data along with any reasonable modifications to the criteria is inputted in an automated decision tool to ensure all applicants are treated the same and fairly.  So the remainder goes towards our own costs to process the application, which can take as little as a few minutes up to hours.

Who could be profiting:

For those property managers who do no screening whatsoever or only run a credit report from a single agency, yet charge a similar fee to those who are doing full screening, are likely profiting off their applications.  In a multi-family dwelling, its discouraged to rent from someone who does not screen, as tenants want to know that their neighbors have been properly screened.  For obvious reasons, Landlords want to hire property managers who are screening their tenants.  Mind you, I have seen lenders charging as much as $60 for credit reports to home buyers and investors.

Also, I suppose those Landlords and property managers who's practice is to accept the best application could be profiting.  This practice is frowned upon and opens the landlord into possible Fair Housing complaints.  First approved, first in has become the industry standard.

Tenant suggestions:

1.  Request a copy of the Landlords written rental policies and guidelines before applying.  Most professional property managers will provide this on their website and with their applications.  What is their criteria for:  income, criminal history, rental history, and employment history?

2.  What is their acceptance policy?  Do they collect  multiple applications and accept the best applicant, or do they accept the first applicant approved.

Profiting off the housing crunch:

I know of one company that allegedly profited off tenants for application and other fees, but they are no longer in business  I think our housing crisis is more about Boise's growth than anything else.   I sell investment properties and I can tell you that I am not seeing greed from the landlords.  The truth is, even with rents increasing, investors have a lower net operating income in relation with the sales price/value of the property.   That's right, homes and multi-family prices have shot through the roof.  But so have other costs such as:  labor costs are up which in return has increased maintenance costs substantially, property taxes are up, and so are insurance rates.  I am no economist, so I can't say that slowing Boise's growth is the answer, but its growth certainly seems to be a factor in costs for the landlord and tenant alike.  I do not blame either for what has happened.

Watch Story Here:  Are landlords unfairly profiting off Treasure Valley affordable housing crunch?

Tony Drost, Chairman
First Rate Property Management, Inc.
Boise, Idaho
Contact me for more information about the Investment Real Estate and Property Rental markets in Boise and Idaho.