As a property manager or landlord, when individuals apply to rent one of your properties, you may require them to pay a rental application fee. This fee is necessary to cover the costs of conducting background and credit checks, ensuring that applicants meet your rental criteria.
However, the rules about these fees aren't the same everywhere. Different states (and even cities) have their own laws, some with specific limits or rules about what the fee can cover.
In this article, we'll cover what rental application fees are, the average cost of rental applications across the nation, who pays the application fee, what the fees can be used for, rental application fee laws by state, and much more.
What Are Rental Application Fees
When a prospective tenant is interested in applying for a rental property, the next step is to complete a rental application.
The purpose of completing a rental application is so that the property management company (or property owner) can pull a tenant screening report to determine if the rental applicant qualifies for the rental per the rental criteria.
Unfortunately, pulling personal information for rental applicants is not free. This means that the property manager (or landlord) must charge a rental application fee to cover the cost of the screening.
Average Rental Application Fee Cost
According to a study by Georgetown Law, the average rental application fee in the United States is $50. However, (11) eleven states have limitations on rental application fees, including some states that have banned them altogether.
We'll cover those state laws in some of the sections below.
Who Pays Rental Application Fees
Usually, everyone applying to rent a place, including every person over 18 years old living in the home, needs to pay an application fee and go through the rental application process.
Typically, the prospective renter pays the application fee when they apply, and property managers then use this fee to cover the costs of background and credit checks through a screening company.
However, in some instances, especially with smaller property management companies or independent landlords, applicants might pay the screening company directly.
TenantCloud offers flexibility in setting up the screening fee to accommodate either scenario.
What Application Fees Can Be Used For
Screening tenants manually for free can be labor-intensive, prone to errors, and might miss important personal details. Utilizing software for tenant screening streamlines the process, reduces the likelihood of errors, and ensures a more thorough review of applicant information, making it a more efficient and reliable approach.
So, most landlords use software for their tenant screening process. The application screening fee covers the cost of pulling rental screening reports. Here is some of the background information that may be required as part of a rental screening:
- Tenant Background Checks
- Tenant Credit Checks
- Income Insights
- Local County Checks
If the application fee is greater than the actual cost of the screening service, the application fees may also be used by a landlord or property manager to cover their employee's time and company resources used as part of the overall tenant screening process.
State-Specific Application Fee Laws
Here is the complete list of application fee limitations and restrictions for all 50 states.
Notable State Restrictions on Rental Application Fees
Here is a slightly deeper dive into the (11) eleven states that have notable limitations on the fees that can be charged when a prospective tenant applies.
California
The California statute that mandates rental application fees to adjust annually based on the Consumer Price Index (CPI) is outlined in the California Civil Code §1950.6.
This code specifies that landlords can charge a rental application fee, which should not exceed the landlord's actual out-of-pocket costs of gathering information about an applicant, such as checking a tenant's credit report, as well as the reasonable value of the time spent by the landlord or the agent in obtaining this information.
Furthermore, this fee can be adjusted annually to reflect changes in the CPI, ensuring that it remains fair and reflective of current economic conditions.
For the specific maximum amount that can be charged as of the latest update and how this fee is calculated and adjusted in line with the CPI, landlords, and applicants should refer directly to the most recent guidance from relevant California state government websites or legal resources, as this amount can change annually.
Colorado
In Colorado, state law recently changed. Two bills, HB19-1106 and HB23-1099, change how rental application fees work in the state. The first law makes sure that any fee a potential tenant pays when applying for rental housing only goes towards the cost of processing the potential tenant's screening. The second law, starting August 7, 2023, lets rental applicants use one detailed report for applying to different places without paying extra fees each time.
Delaware
The Delaware state statute that governs the application fee cap is found in § 5514(d) of the Delaware Code. According to this statute, landlords may charge an application fee to cover the costs associated with processing a rental application, including but not limited to credit checks. The fee is capped at the greater of either 10 percent of the monthly rent for the rental unit or $50.
Maine
In Maine, the statute related to rental application fees is found within Title 14, Chapter 710 of the Maine Revised Statutes. Specifically, §6030-H addresses fees charged to applicants for the lease of residential dwelling units, mandating that landlords can only charge fees that cover the actual cost of screening processes such as credit and background checks.
Massachusetts
In Massachusetts, only licensed real estate brokers are allowed to charge application fees. This regulation can be found in Massachusetts General Laws, Chapter 186, Section 15B(b).
Minnesota
In Minnesota, the law regarding rental application fees ensures that landlords can only charge fees that cover the actual cost of screening potential tenants. This means that the application fee should only reflect expenses such as credit checks and background checks. If a landlord charges more than these costs, they are required to refund the excess amount to the applicant.
New York
In New York, the law regarding rental application fees is found under the New York State Real Property Law § 238-a. This statute caps application fees at $20 and requires landlords to waive this fee if the applicant provides their own recent background check or credit check conducted within the past 30 days.
Vermont
The statute prohibiting rental application fees in Vermont is found under 9 V.S.A. § 4456a. According to this law, landlords or their agents are not allowed to charge an application fee to individuals applying to enter into a rental agreement for a residential dwelling unit.
Virginia
Virginia's statute that limits rental application fees to a maximum of $50 is found under § 55.1-1203 of the Virginia Residential Landlord and Tenant Act. However, that $50 is “exclusive of any actual out-of-pocket expenses paid by the landlord to a third party performing background, credit, or other pre-occupancy checks on the applicant.”
Washington
In Washington, Chapter 59.18 RCW requires that the amount charged for rental application fees must exactly match the cost of the screening services provided, preventing landlords from making a profit from these fees.
Wisconsin
For Wisconsin's rental application fee regulations, per ATCP § 134.05, the rental application fee cannot be more than $25, and the landlord is required to give the applicant a copy of the screening results.
Conclusion
This guide has shown how the rules for what you can charge a renter when they apply to rent a place from you differ greatly depending on where you live.
Some places don't limit what you can charge, while others have strict rules, including how much can be charged, what the fee can be used for, and whether or not all or some of the funds are refundable or not.
Because legislatures are actively updating residential rental laws, it's important to check the most recent changes in your state and local region if you're not sure what application fees you are — or are not —permitted to charge.
Frequently Asked Questions
Why are rental application fees so expensive?
Rental application fees cover the costs of checking potential renters' backgrounds and credit histories. The expense ensures that applicants meet the rental criteria, protecting the landlord's property and other tenants.
What is the difference between a rental application fee and a security deposit?
A rental application fee is a one-time charge for processing a rental application and conducting background checks. A security deposit is a refundable payment held by the landlord to cover any damages or unpaid rent during the lease.
What can rental application fees be used for?
Application fees are used to pay for the cost of background checks and credit checks, and sometimes, the administrative time needed to process the application and screen potential tenants.
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