In Montana, apartment rental application fees were up for debate briefly in the legislature.
While that bill (SB241) didn’t make it out of committee, it’s likely not the last time this issue will surface, as application fees have raised plenty of questions in places like Bozeman, Missoula, and other desirable Montana cities with growing populations.
Sterling Commercial Management Group Property Management Director Jessica Morina has managed thousands of apartment rentals. “Application fees are definitely important, though many states limit when you can charge potential residents,” she says. “Commonly, a property manager will not require an application fee up front. They would wait until after the potential tenant has viewed the unit. Then, the fee is charged once they decide they like the rental and want to move forward leasing it.”
When the fee is charged is a big part of the issue in Montana’s tightest apartment markets. With so much competition for each available unit, many application fees collected before a property is toured. That means they don’t make it to a background or credit check stage. As a result, some people, like the sponsor of SB241, argue that application fees are being used as a revenue stream that exploits the sheer volume of apartment seekers.
Breaking Down the Fee
Most often, the application fee is used to pay for the hard cost associated with a credit check and background check. Morina says that most software programs run credit and background checks simultaneously and the cost is generally between $20 – $40. Some states, like California, set maximum fees that can be charged.
Morina points out that a certain portion of the application fee is overhead: namely, staff time. Running the checks takes staff time, which costs the business money. Ideally, the fee covers the hard costs of the background and credit checks, as well as staff time. But, if the application is never processed, Morina notes that there isn’t much staff time that goes into the interaction either.
As more states regulate application fees, property owners and managers should keep up with national trends along with local policy. It’s not just states that are legislating the costs of applying for an apartment. Some cities, like Boise, Idaho, have ordinances capping application fees.
In addition to carefully tracking federal, statewide and municipal rules around application fees, property managers can consider their own policies. Was the fee set when there was less competition for units and staff could answer more one-on-one questions? Can the fee be held until after an initial property tour? If an applicant asks for the fee to be refunded, is that an option if they no longer want to pursue the rental?
Property managers can also be transparent about existing waitlists, says Morina. “If there is already a pool of qualified applicants interested in the property, make sure you are up front about that before a property tour. Some folks might decide that they don’t mind paying to sit on the waitlist and being honest goes a long way in developing a relationship with them if they become tenants.”
Having a thorough overview of the application process available online can be beneficial. “Some property management companies have long Q&A on their website. If people can get answers to their questions before touring a property, they are less likely to feel like they wasted their application fee,” she says. “Having that information available can also save staff time answering questions.” Morina continues to monitor the future of rental application fees in Montana.