Application Fees -- New Renter Bill of Rights Proposal -- Good or Bad?

So many tenants are asking me sheepishly, “What is your application fee?” I do charge $35, but typically I only charge it to the person who is actually getting the house.

Tenants tell me they are going broke paying application fees. Tenants have been heard. There is a new proposal in Michigan called the Renter’s Bill of Rights. The proposal suggests a fee limitation restriction. Let’s talk about that!

What I really want are your stories. I want to use the comments in this video to give to the lawmakers to help them make their decision. I know the lobbyist for the landlords. But I think all the landlords need the tenant’s perspectives too.

In this video, I’m going to tell you who I am, offer 3 quick tips for Tenants, 2 suggestions for landlords, one about a law you need to know before you charge your application fee. And I end on two stories about application fees.

Introduction

I’m Monique Burns. My husband and I started our Detroit rental portfolio in late 2007. Our first tenant moved in in 2008. We built up our portfolio. From there we helped other people build their portfolios by buying the houses ourselves, renovating them, finding tenants, selling the houses, and managing the properties. We scaled up our management company and sold it in 2020. Now we are back to increasing our own portfolio and selling properties to homeowners. I do offer consulting services right now for investors who want to save money on property management fees or learn how Section 8 works for landlords. Email me if you’re interested. Monique@GreatDayPM.com

Tenant Tip #1

Find out what the qualifications are before you apply. If you ask me, I’ll wonder what you’re worried about. You may want to state why you’re asking, that it strictly has to do with application fees. But most of us legitimate landlords have our qualifications publicly posted. Look for that before you ask, if you can.

Tenant Tip #2

Tenants, I want to tell you something from a landlord’s perspective. When you complain about paying too many application fees, what I’m hearing is, “My application is bad and other landlords are denying my application.” So don’t say that.

Tenant Tip #3

Tenants, please watch out for a landlord who insists on taking the application fee before showing you the house. This could be a scam. I had a tenant tell me my house I had listed for $1,250 was on Craigslist for $750. For $50 she could get a viewing of the house. The applicant was suspicious and Googled my address and found the real ad. On the other hand, this may be the policy of the property manager so they aren’t wasting time showing a house to people not qualified.

What Tenants Need to Understand

I’m also hearing that Tenants do not understand what it takes for us to process your application. We have software to pay for. We have people to pay for to review your application and sort through what is true or not true. This can take an hour or two. Then to run the actual background check, it’s anywhere from $15 to $30. It depends on the property manager’s software. We then have to pay someone to show you the house. We would rather not do all that if you aren’t serious about the house.

On the other hand, I was thinking about when I had a property management company. I read resumes. I then took my time to meet the people. I spent a good hour interviewing my employees. If I were a bigger company, I would have sent their application to a company that does criminal checks and employment verifications. I never charged anyone to apply for the job!

Landlord Suggestion #1

Landlords, here is an idea I heard of. We could use the application fee and apply it to the first month’s rent to the tenant who qualified. We could do a soft check of the tenant’s application (read through it, Google their name, look up the court records), then decide not to do the background check and return a partial amount to the tenant.

Landlord Suggestion #2

Does your state have application fee restrictions? Here is a link to a website that shows each state. Michigan as a state does not, but Grand Rapids, Michigan, has its own ordinance that basically states landlords are to only charge the exact cost of running the background and they are to display what that cost is. Here is an example from this management company:

The following is an itemized explanation for the disposition and use of the application fee:

AmRent (Criminal, Credit, and Cross ID Check): $12.40

Online Application Software: $7.95

Office Administration (rental history check and income verification): $29.65

Here is a link to find out about your state’s rules. But you may want to Google your own municipality as well to see if there are application fee restrictions from MY SMART MOVE:

My 2 Bad Landlord Story

I was talking to a property management company and I asked how they pay their staff. It’s expensive!

“All of our office staff are paid by the application fees.”

I put this out as a general question on Metro Detroit Real Estate Investors Facebook Group and I got this one reply:

Lol you got commissioned sales reps working for big time property management groups that manage 2000 properties in Plymouth and they are charging 150 per application.. on a 20 unit that has one permanent open rental just for viewing and they will never rent that unit.. it brings in over 75k in one year with just 10 applications a week. What are you even talking about lol you really don't understand how this cut throat world works do you?

Conclusion

I see both sides to this. I try to meet people in the middle. I do the soft check for free. It’s my time that I should be paid for. And I only charge the application fee when it starts costing me money to run their background. I don’t know that I have it all figured out or not. What do you think is fair? If this bill passes, what amount should the fee be?