The Biden Administration is trying to pass a nationwide bill of tenant rights, where it prohibits landlords from charging what they refer to as “junk fees”. Why this may sound good in theory to the next tenant looking for a new rental, the ripple effect this can cause, may make that task of finding a new “affordable” home harder than it has ever been before.
Some of the fees they are proposing that a landlord is not able to charge are application fees, hold fees, pet fees, administrative fees, insurance fees, high risk fees, payment processing fee, late fees but we are sure there will be more added to the list. If these fees are taken away from being charged to a tenant where applicable the costs are going to be passed on to the actual homeowner/investor. Having rental properties is a job for many people, they expect to make a profit, if the margins are too low they either sell and get rid of the rental property, making the market of available rentals scarce or they raise the rents, which can make it difficult for a searching tenant to find something they can afford, which can add to the homelessness problem a lot of cities across America already face. Let’s face it, no one owns rental property and does not make some kind of return, not even our friends in Washington.
So, let’s look at each one of the proposed fees individually and state what we as Professionals in this field for several years predict the outcome will be.
- Application Fees – If you are not able to charge an application fee for the background and credit check (both of which several members of our government are trying to pass a bill not allowing us to use those things in our consideration), well in most cases the property owner will have to foot the bill for all persons wanting to rent their property, at any given time we can have 10-15 applications come in on a property, if a company is charging $50 an application, that could potentially $1000 bill to that landlord with no guarantee of a tenant.
- Hold Fees – We are interested in learning what they mean by hold fees. Currently some companies charge a hold fee, equal to the security deposit amount, when the tenant moves into the property this hold fee becomes their security deposit and is refundable upon successful move-out. Now if the tenant decides that doesn’t want to move-in to that property any longer they forfeit that hold fee, as all advertising for this property has stopped because you said you wanted it and you paid. If the White House removes our ability to hold people accountable, then they just change their minds and that’s it, don’t worry about the property owner that can have their property sit vacant for months because the tenant that wanted the property changed their mind and there is no skin in the game for them.
- Administrative Fee – Administrative fees are used for many things in the property management world, they can be used for the tenant requesting a change to their lease, Tenant wanting to early terminate their lease etc. This covers the management’s costs for working outside the realm of the agreed upon lease agreement, so again when there are no repercussions or in this case costs for work to be performed outside of the agreement, what is the point of the contract? Administrative fees are not typically charged outside of the initial lease signing unless the tenant requests or does something outside of the agreed upon terms. By removing that option, the lease agreement is just a useless piece of paper.
- Insurance Fees – Most landlords will require a tenant to have renters’ insurance to protect themselves in case of an emergency as a landlord policy will not insure the Resident’s personal contents. Tenants do not realize that if the power is knocked out by a storm for several days and they just filled their refrigerator, it is not a requirement of the landlord to reimburse them for the groceries they lost but their renter’s insurance may. Many Landlords and Property Management companies have created programs for renters to ensure they are protected, but if that right to offer the tenant affordable insurance is taken away, who are they protecting now?
- Pet Fees – Pet fees have been being charged for several years now; a landlord takes a huge risk allowing pets at their properties as pets can be destructive at any age. It is not just puppies that will relieve themselves on the carpet, older dogs do it too. The fees are there to help offset the expense when a tenant moves out and there is a dog smell in the property and there are restrictions on how much you can charge a tenant for remediation or if you do charge the tenant and its above their deposit, there is no guarantee that the landlord will ever recoup that money, so what is the ripple effect to this scenario? No Pets allowed at properties and tenants found with unauthorized pets will be subjected to high violation fees and eviction due to breach of lease, adding to the previously mentioned rise in homelessness.
- High Risk Fees – This fee was added to be able to lower credit score requirements and give Residents with a challenged past the opportunity to rent a little easier. They are a risk and landlords acknowledge that by historic record they are taking on the risk of unpaid rents, eviction and possibly property damage that the property owner will ultimately have to pay. By adding this fee, they are accepting the risk and tenant are understanding about the fee because most want to do better and are so excited when they come to us with their improved credit from paying on time and we remove the fee. The ripple effect of removing this fee? Increased credit requirements, when a company or landlord may have accepted a 500-credit score, they are now going to require 600 or higher, making a large portion of Americans unable to provide housing for their family. Some official’s response to this, ok well we will just not allow landlords to check credit, well now move-in expenses are going to rise because everyone is a risk so landlords are going to start requiring higher deposits, first, last months rents before a new tenant can move in. Moving is already expensive as it is, this is going to cause more debt, as people will likely have to take out loans to cover these costs and possibly cause a higher bankruptcy rate when they can’t afford to repay loans because rent prices have increased to cover the expenses that a landlord didn’t use to pay.
- Late Fees – I guess the legislation doesn’t feel like a tenant should be penalized if they can’t pay their rent on time. I wonder if they are going to make this a law on mortgages too, when property owners cannot pay their mortgage on time because the new law states that there are no repercussions if you don’t pay your rent on time, so pay whenever you want. Landlords still have a mortgage to pay, so can they just pay whenever they feel like it without penalty?
- Payment Processing Fees – I am not sure if they realize that the credit card companies are charging these to business owners to accept debit card transactions, so are they going to tell them they can’t charge them anymore? Business owners cannot take on these additional fees when they are told they aren’t allowed to charge it back in their company. It’s not just landlords, or property managers that are charging them to their customers, last weekend I went to eat with my husband at this little local small business diner and we get our check and pay with debit card, because that is what most people pay with these days, well to pay with a debit card we got added a 3% fee to our bill. Did I like it? No, but I paid it because I like most people did not have cash on me and the alternative was to use the ATM but then I would pay even more on the ATM fees for using their ATM it bills then my bank bills me for using an ATM that isn’t theirs. Are we doing anything about other businesses, big banks? Just landlords? Why?
This blog isn’t to bash any political party, it is to simply put out the possible ripple effect that can happen when they are attacking an industry that they know nothing about. Removing a business’s right to run their business the way they want to survive and make a profit isn’t the answer. People can choose to do business with whomever they want too, if someone doesn’t like the terms of our management agreement, it’s ok they go down the street and sign on with one of our competitors, if a tenant doesn’t like the rent price on a unit, its ok they go rent somewhere else. Instead of making all these restrictions that sound good to renters, how about educating them with the reasons why things are the way they are. I belong to so many Property Management related blogs on social media and Landlords are put out there to be the bad guy, because no one has explained to them the costs and risks involved, or that this is a job. We are all just looked at as greedy and unreasonable which couldn’t be further from the truth.
We have several owners that are only making a few dollars each month off their rental property and if there are any repairs, they are paying for someone to live there each month. We have one owner that’s mortgage is higher than the rents, so he is paying out of pocket around $300 to go towards the mortgage payment because the rent doesn’t cover it and the market didn’t support the mortgage payment + management fees as a rental price. Where is the help for those owners?
Every market is different, our market is a Military town, most of our property owners are accidental landlords, they didn’t want to have rental property, they got stationed here, bought a house, and got orders. They don’t have enough equity in their house to sell it, so they have no choice other than foreclosure than to rent it out. These folks are lucky to break even each month and the pay the Military receives unless they are higher ranked, is not enough to cover two homes. Where is their help?
Washington thinks they are helping renters but, their intrusion into our industry is going to cause less availability, rise in foreclosures, rise in rental costs, high unemployment rate as many smaller property management firms will not be able to sustain these restrictions to stay in business and an overall peak in an already high homelessness problem across the country. We are not saying that there shouldn’t be some regulations put on these “junk fees” as they refer to them but completely restricting them is not the answer.