From a plugged-in landlord bugged by a reported uptick in application fees for apartments in San Francisco:

I don’t charge an application fee. I figure that running a credit check is the cost of doing business, and I only do it on the finalist. It’s lame that some are charging dozens the fee for the same place. We know that they’re not doing dozens of credit checks.

This makes us all look bad. And it’s another reason for the city to figure out how to [reign] over landlords.

One unconfirmed anecdote and hearsay from The Bay Citizen retells the tale of a $3,500 a month loft in the Mission attracting 250 applications at $40 a pop.
In SF’s Tight Rental Market, Paying Just to Look [baycitizen.org]

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Comments from “Plugged-In” Readers

  1. Posted by Big V

    > 250 applications at $40 a pop.
    wow, that’s $10K. It more profitable to have it on the market unrented than to actually rent the unit out.
    fascinating
    yes, that seems like a trend that should be stop.

  2. Posted by eddy

    Hardly much different than the broker fees that renters pay in NYC which are usually 1 months rent if you are lucky, or 10% of the first years rent. This is what happens when rental stock gets in the 1-2% availability range. The Manhattanization trend continues.

  3. Posted by The Milkshake of Despair

    Yes it is abusive to collect fees for credit checks that won’t be done at all. On the flipside if a renter knows that the competition will be high then it might make sense to either forgo the apartment or request that the landlord not collect a fee unless they’re serious about renting. In other words “You’ll rent to me if my credit check comes up good, right?”
    Credit checks are important for landlords. I learned the hard way when a “master tenant” had selected a replacement roomate which I thought was someone that she trusted. The new tenant turned out to be a consummate con artist and a nasty person to boot. She ripped off both of us.

  4. Posted by eddy

    It’s an “application fee”; not a credit check fee. Nobody is forcing you to apply.

  5. Posted by lyqwyd

    Collecting a credit check fee without running a credit report is probably fraud. If that story above is true that 250 people applied, I hope some of those people file a complaint with the police. I’m not a fan of rent control, but this type of abusive behavior by landlords is probably a big part of why it exists.

  6. Posted by tc_sf

    “Collecting a credit check fee without running a credit report is probably fraud.”
    Don’t know if there is anything specific to landlording, but in general denial of credit or services based on information from a credit report, however small a factor that information played, by law required notification to the applicant and gets them a free copy of the credit report. So it would seem to be fairly easy for people to check if the credit report was actually being run. I believe that failure to follow the above is actually a federal offense.
    Note also that the vacancy rate mentioned in the article is 3.7%, not 1-2%. And also consider that the occasional $40 fee is more in the range of what an owner would spend on landscaping or minor maintenance issues then 10% of yearly rent in Manhattan.

  7. Posted by eddy

    The long term rental vacancy rates in NYC have been

  8. Posted by eddy

    Above comment first paragraph got cut off with a link. Maybe the Ed. can find / fix.

  9. Posted by annoyed

    I do the odd rental here and there and I’ve found it much easier just to have the applicant provide me with a current credit report. It’s not only easier for me, but it also saves my having to charge them something, plus they don’t get their credit run over and over again. I also tell everyone that if anyone ever tries to charge them an “application fee” that they should probably run for the hills.
    Rental Agents: Just take the leasing fee you charge the landlord and be happy with it. The greed is really ugly and a little sad.

  10. Posted by shza

    eddy, the brokerage fee in Manhattan is paid only by the applicant who becomes a tenant — not by everyone who applies. Big difference.
    The times that I have looked to move into a new rental in SF/bay area, I have brought my own recent credit reports/score printouts as well as bank statements and pay stubs, and provided them on the spot if I was interested enough in the place. I find it useful to show at the initial meeting that the rent being asked is less than 5% of our monthly HHI and that we have perfect credit — we have never been turned down in favor of another applicant (just asked “why we’re not buying”).

  11. Posted by Dubocian

    As a small landlord, I have confronted this issue for years. I don’t really like applicant-provided credit reports, it’s too easy to fake them with image-editing software. And I’ve also found that NOT asking for some kind of check leads to frivolous applications – you go through the trouble of verifying all of the information, etc., and then offer the apartment to someone who has “changed their mind.” I find that if the tenant has a little skin in the game, even if it’s just a pittance, they don’t apply unless they are serious.
    My solution is to require an application fee from every applicant ($35 each.) But I don’t cash they check unless I actually run a credit report on that application – and running the credit report is the last step in the process, after scoring the applications and basically choosing the best one. So generally the only one(s) that actually pay the fee are the person or people who are offered the apartment. Everyone else gets their check shredded or returned.
    To me, this is more than fair (I spend my time evaluating all those other applications and could be justified to collect a fee, but I choose not to do so unless I actually incur the cost of the credit report. I wish other landlords would adopt a similar policy.

  12. Posted by @shza

    HHI as 5% of the rent. Since the current rent average is $2800, that would mean you would have to make $56,000 a month, or $672,000 a year. That’s a pretty extreme circumstance, I’ve never heard a landlord requesting that much income.

  13. Posted by eddy

    “eddy, the brokerage fee in Manhattan is paid only by the applicant who becomes a tenant — not by everyone who applies. Big difference.”
    My earlier post that got cut off went on to say that in NYC where the Rental Inventory Rate runs below 2% directly drives these crazy practices. Now we are seeing such practices here @ sub 5%. $40 per person doesn’t sound that bad but the implication is that it takes 10-15 applications to land the right apartment and the cost adds up over time.
    The point is that landlords are just reacting to market forces. Drop lending standards and offer no-doc loans and look what happened. Thriving job economy in a constrained rental market has its consequences. This is one of them. I expect it will get worse.

  14. Posted by tc_sf

    “My earlier post that got cut off went on to say that in NYC where the Rental Inventory Rate runs below 2% directly drives these crazy practices.”
    Perhaps you typed a “less then” sign instead of a “less than” sign when embedding the link. Happens to me all the time:)
    Note that the latest Miller Samuals report shows that 9% of Manhattan landlords are still offering just over 1 month of free rent as concessions, down from 45% offering 1.5 months free rent a year ago. I don’t think the vacancy rate has changed significantly over that time period.
    Paying a broker or not is more akin to selling via agent or FSBO for a home. There are a lot of people in Manhattan for whom the time/money tradeoff makes the use of a broker worthwhile. Additionally “brokerage fees” for rent stabilized apartments may not be what they seem.

  15. Posted by eddy

    You are correct about the “less then” sign ;)
    I had referenced this post: http://bit.ly/jxEkud that shows the long term housing trend in NYC at “less than” 2%. The vacancy rate dating back to 2007 is lower than 2%
    I don’t see where the Miller Samuel reports says that 1.5 months rent is given away. Only that “concessions” were made on 8% this 3Q 2011 vs 45% in the same quarter in the prior year. And that 3Q 2010 report states:
    http://www.millersamuel.com/reports/pdf-reports/MRMO3Q10.pdf
    The number of new rentals surged as landlords offeredliited concessions for lease renewals causing listing inventory to decline 28.1% from the same period last year
    So the data there seems to indicate that concessions as a whole are minimum.
    The broker collecting this fee is just pure and simple supply / demand economics and the time value of money of using a broker is not an option. In SF you can surf craigslist all day long and avoid paying a broker. And brokers in SF collect from the landlord. You simply cannot rent a place in NYC without paying a broker. Maybe fewer than 2% of all places are rented without this fee and those places typically have a higher rent to compensate.

  16. Posted by shza

    I’ve never heard a landlord requesting that much income.
    But having that much income is very useful for ensuring that you are swiftly chosen over other applicants. That was my (secondary) point. My primary point was that it’s useful for rental applicants to come to a showing with all of their financial information ready to go, because it may allow them to “cut the line.”
    (For the record, our monthly rent is well below market for a 3BR SFR — closer to $2500; but yes, we make substantially more $$ than the average renter — not denying we’re in “the 1%”.)

  17. Posted by lol

    Higher income requirement, when the market allows it has a double benefit for the landlord:
    1 – Income security. Duh.
    2 – A higher income individual will be more likely to either move up after a couple of years, or even purchase, therefore ensuring a healthy enough turnover.
    What some landlords of rent-controlled property fear most is the 50-ish YO single stuck into the same job who will likely stay 20-30 years and lock out most of the future potential rent appreciations.
    The ideal tenant is a young outgoing high earner who almost either lives at his job or goes out most evening during the week and zooms out of town on the week-ends. Little wear and tear to your place.
    I had one of those as an upstairs neighbor and we almost never saw him. He’d been there 5 years but was sleeping at his job once or twice a week, then his GF the rest of the time. When he left last year, the landlord didn’t have much to do to the place. Paint was good, appliances spotless. The perfect tenant. Perfect neighbor too…

  18. Posted by tc_sf

    “I don’t see where the Miller Samuel reports says that 1.5 months rent is given away.”
    The Free Rent/Owner Pays (Mo) line right below the % giving concessions.
    The vacancy has been low back to 2007 and NYC brokers have been around for at least decades. Rents have varied quite a bit over that time period. I’m not sure there’s much correlation.
    You can indeed rent a place in NYC without a broker and if anything anecdotally it’s gotten easier with craigslist and other sites. Though it still seems difficult and for many not worth the fee.
    All the fee (and the concessions) do is change the effective rent. I don’t think looking at the fee itself rather then the all-in effective rent tells you much. In the same way that looking at RE commission rates over time probably don’t tell you much about what’s happened to housing over the last decade.

  19. Posted by @shza

    Yes and obviously those that make $10,000,000 a year are favored over yourself. And no you are not in the 1%- the 1% earn over $980,000 a year.

  20. Posted by A.T.

    Nah, you only need to earn a little more than $500,000 to be in the 1% (I’m fairly certain two biglaw lawyers like shza and his wife are firmly within that). Heck, you only need $2.1mm to crack the top .1% – I’m going for it baby!!!
    Those in the 99% live like pigs.
    http://blogs.wsj.com/economics/2011/10/19/what-percent-are-you/

  21. Posted by billionaire

    Millionaires live like pigs.
    You are nothing in the Bay Area (land of the billionaire) unless you are in the big boys club.
    Doubt I’ll see you here anytime soon. :)

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