Credit/Background check cost - Who pays?

Question

Do you pass on the cost of the background and credit check to your applicants? I just rented a 2 bedroom unit to a couple, and I asked them to pay the cost of the Transunion SmartMove Background check.  They balked at paying $80 for 2 applicants when they had no assurance they would get the apartment.  I liked the couple, so I backed off and paid the fee myself.  The credit check came back great, and they have moved in.  Have you had similar issues?

Michael Noto · Answer

Always make the tenant pay fo the app fee. Keeps most people who do not meet your minimum screening criteria from applying thus wasting less of your time.

Theo Hicks · Answer

I use the service Cozy.co. We send prospective tenants a link and the complete the application (which includes a credit and background check) and they pay for it themselves. I include the cost of the application in the rental listing so they know ahead of time.

Syed H. · Answer

Tenant pays, but I will reimburse the cost if they sign a lease with me.

Suly B. · Answer

@Tom Spackman you got lucky that time but in my opinion it's never a good idea to pay out of your pocket. Anyone seriously interested in renting will pay knowing they have no flaws that will disqualify them.  Someone who is interested but doesn't want to pay is pretty much waiving a red flag.

Dave Godfrey · Answer

I agree with @Theo Hicks. Cozy.co is a great service.  If the tenants balk at a relatively small fee, then that tells you something about them.  Good luck!

Rob B. · Answer

Hi Tom! For starters, great question. I could understand the prospective tenant's hesitancy but at the end of the day, it is never a bad idea to make sure that all of your bases are covered.

Additionally, it sounds like it worked out this time, but if you're covering the cost of application fees for each listing lead who comes your way (in the future) it can become pretty costly. At this day in age, some landlords do opt to cover this fee for tenants but it is pretty standard to have them pay their own application fee.

TransUnion's SmartMove tool is great; we actually work closely with them. I think the way you can combat this issue would be to look into resources that offer an application that can be shared with multiple landlords (even with the TransUnion reports, those reports are good for 30 days). So, even if you have to reject a tenant's application, they can share that application/those reports with another landlord instead of having to pay multiple application fees. I have a couple of recommendations I'd be happy to share. Feel free to DM!

I know that some states have specific laws with regard to what can or can't be charged to the tenant (ie. In Chicago, IL you can charge an application fee; but in places like Massachusettes, I know there are some pretty tough laws with regard to charging application fees — specifically in MA, landlords cannot charge an application fee). Similar situation with regard to background and credit check efficiency; some states like Oregon and Washington have pretty strict regulations when it comes to what may or may not be released as part of someone's criminal records. All in all seems to have worked well this go round! Just wanted to present some food for thought.

Question: What city and state is the property located in?

Kindly,

Robert B.

Anthony Thompson · Answer

@Tom Spackman it depends on the rental market and area. In a market like today's where, generally speaking, most units are full and it's easier to rent, I think you can be more demanding and ask the tenants to pay for things like this.

However when the market turns and vacancies are longer, and you start to see rental incentives (half month rent free, first month free, etc.), then it's going to be a lot harder to ask tenants to pay for things like that.

I do think $40 each is a little on the steep side so I might have balked too, if it were me. At least, you could have tried to split it with them, but it sounds like that ship has sailed and I'm glad that they came back good.

Whether to charge an application fee or pass the cost of a credit/background check on to applicants is one of those questions that comes up periodically and never really has a perfect answer.

Some landlords use it as a way to weed out the tire kickers and people who aren't serious about the apartment, and also people who already know they have bad credit.

And in A or B areas I think that can work very well.

In C areas, like much of Woonsocket, I think it can sometimes work against you as there may be people who have credit issues who nonetheless would be great tenants because even if they haven't paid every bill on time in the past, they've always prioritized their rent.

So I think you need to be flexible with the area and also what the state of the rental market is telling you, and, related, what you see your competition doing in that area as well.

Theo Hicks · Answer

@Dave Godfrey agreed. For my Class C portfolio in Cincinnati, I've never had someone not lease a unit because of an application fee. It is all about setting expectations from the get go rather than surprising them with an application fee.

Josue Vargas · Answer

@Tom Spackman

Depends on your property class.  I have Class A/B and prospect tenant looking in the area usually have good incomes and this is typically done on most rental properties.  I do not offer to pay credit at the moment they apply.  By enforcing this during the application process, only very interested and serious tenants apply to go forward with application process ($40/adult), making my life easier.  Of course, my area have a high demand for renting, it may not work on your area.

Anthony Wick · Answer

@Tom Spackman  I would have explained to them that I only submit one application at a time, and as long as everything they told me checks out, then it will not be a problem. I also do preliminary checks like previously landlord, employment, online court systems, facebook, etc., so only those that pass this free preliminary check gets passed on to SmartMove. I don't handle any money for background check. They pay SmartMove directly.

If they still complained, then they wouldn't rent from me.

I should state, my  units range from $1,100 - 1,400. If they balk at $80 I probably don't want them as tenants.

Credit/Background check cost - Who pays?

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