Purposed Legislation on Property Managers and Owners
City of Boise Proposing to Amend City Code Regarding
On September 12th, 2019, the City of Boise proposed amending its code regarding short-term rentals. “The proposed amendment would allow only one short-term rental per conforming, taxable parcel in residential zones in the city of Boise. Additional amendment highlights include requirements for an administratively approved application(submit application to the city to become a short-term rental), on-site owner occupancy, and code compliance.
An Update From Idaho Apartment Association Regarding The Regulation of Applications and The Cap of Application Fees
To all Rental Operators and Owners –
This week, the Boise City Council will take another step forward towards regulating and capping application fees. Even if your rental properties are not in Boise, this should be alarming to you. When the government intervenes in a market, it has consequences. Several we anticipate if Boise moves forward and CAPS application fees include:
It may spread to your city council and community
It will lead to fewer owners and managers doing criminal background checks and increase crime in your community
Those that charge fees will redirect these costs to current tenants through higher rents
While many owners/managers currently have no charge or charge less than the proposed CAP, if the government sets an amount, the market generally adopts that across the board and the “ceiling becomes the floor”.
We hope you will take this situation seriously, and as the threat to property rights and best business practices that it is.
If you own properties in Boise and would like to reach out to the City Council, this is their contact information:
The Idaho Apartment Association would love to be involved in and support a local ordinance that addresses rental application fees. We propose and will support the following solutions:
Requiring a property owner or manager to disclose their rental criteria to applicants before taking an application fee
Prohibit taking more than one application fee per vacancy
No Rent or Fee Controls on Residential Rental Housing – this is too risky and drastic!
1. We hear stories of people paying multiple application fees, but they should never pay more than one.
Professional property managers post/disclose their rental criteria at the time of application. This informs tenants what standards they will be judged by so they NEVER pay a fee unless they know they will be accepted. If there are owners/managers that are not disclosing their criteria upfront, let’s mandate it. This will solve the problem of multiple application fees. No one should pay a fee unless they know the criteria that will be used to qualify them.
Likewise, tenants should never apply at more than one place….it’s unfair to owners if a tenant applies for 5 places when they can only lease one. However, if they do apply multiple places, no one should feel bad for them paying multiple fees, as this is entirely their choice.
Sample language (borrowed from Utah’s statute):
(5) (a) An owner shall disclose in writing to an applicant for a residential rental unit:
(i) if there is an anticipated availability in the residential rental unit; and
(ii) the criteria that the owner will review as a condition of accepting the applicant as a tenant in the residential rental unit, including criteria relating to the applicant’s criminal history, credit, income, employment, or rental history.
(b) An owner may not accept a rental application from an applicant, or charge an applicant a rental application fee, before the owner complies with the disclosure requirement in Subsection (5)(a).
2. The second issue is one of uneducated/unethical behavior that is already illegal under consumer protection and fraud laws. No owner should ever accept more than one fee at a time per vacancy.
If a property owner/manager has one vacancy, they should take only one application/application fee at a time. If an applicant one qualifies, they are in. If not, they open back up the process (or take a back-up applicant), do a check on that person (applicant two), and say yes or no, etc.
If a property owner/manager is taking 5 application fees in one place, we believe they are already violating Idaho consumer protection laws.
The Idaho Apartment Association has no problem with Boise City having an ordinance that specifically prohibits taking an application fee unless there is a unit available.
(c) An owner may not accept a rental application from an applicant, process the application, or charge an applicant a rental application fee unless there is availability. An owner can notify an applicant that they are in a backup position and the fee will be refunded if the application is not processed. If it is not processed it must be returned within 72 hours.
3 . The Idaho Apartment Association opposes ANY rent/fee controls on residential rental property. It is in the best interest of the community that property owners screen applicants and do not allow disruptive tenants into neighborhoods. If rents/fees are capped by Boise City, it could potentially lead to state pre-emptions and a drawn-out battle with the rental housing industry. Why not try these first two measures first, and then if they don’t work, re-evaluate in a year’s time?
Application fee CAPS would ultimately hurt Boise Renters. In places where they are tried, costs are displaced, not eliminated. For instance, if applicants can’t be charged the costs of screening them, this will transfer costs on to other tenants through other fees or higher rents. Additionally, when markets set fees they go up and down according to the market or competition. If CAPS are imposed, the market loses flexibility and the ceiling (CAP) usually becomes the floor. Fees rarely go away or go down like they could when controlled by the market.
We look forward to working with Boise City to find a balanced approach that can be supported by the industry.
Exhibit One: How Professional Property Managers Process Applications
They advertise a vacancy
They tell interested parties they take the “first qualified applicant” and provide rental criteria upfront
The first person to apply, pay their application fee and put down the deposit, is checked against the “rental criteria” (see sample below)
If that person qualifies, they are in. If they were rejected for one of the reasons they were told in advance they would be (very rare), the property manager moves to the second person who puts down an application, fee, and deposit. Owners/managers should process only one application and fee at a time
Professional owners/managers NEVER process multiple applications for the same unit simultaneously. This is already a consumer protection violation (taking a fee on a product you don’t actually have available would be bait and switch). If you are taking 5 application fees in one place you are already violating the law and defrauding 4 parties since you are taking $ from 5 and only have one place available!
EXHIBIT TWO – How application fees are set
Components of resident screening costs:
Hard costs for a credit and Idaho state criminal background average $25 a person. These are run through 3rd party providers and/or through a property management software. However, if a search finds a criminal hit, Federal law requires the provider to pull a county-specific search to validate before it can be listed. This costs between $6-20 on average, although some counties in New York are as high as $95. Also, some parts of the country do not share data to a national database and require a county by county search for every county a person has lived in. In those states, it costs PER COUNTY THEY HAVE LIVED IN an additional $15-30. States that don’t share with a national database and so would incur a higher cost include: Colorado, Wyoming, South Dakota, New York, most counties in Florida and many other places.
Because of this, a high percentage of background checks will be higher than the $25 average cost.
Staff costs for verifying rental history, employment history and income history average 2 hours of staff time per applicant. At $20 average employee cost (including benefits and taxes paid), this averages $40. As you can imagine, it takes a lot of messages left and followed up on to get previous landlords, employers, and other references to call a landlord back.
In summary, for most owners, a thorough background check costs:
Hard costs to their provider: $25 + (in some cases much more)
Staff time (labor) $40 for 2 hours of labor/staff time
Minimum Average Cost: $65 a person
In a market, owners have to compete, so they often charge less than this. If these costs cannot be passed on to users, they will be passed on to others, unfairly increasing rents and fees for ALL Boise tenants.
EXHIBIT THREE – Sample Rental Criteria
City of Boise – Application Process and Fee Cap Ordinance
The City of Boise is proposing an ordinance to address concerns that have been raised by tenants with respect to application fees. Anecdotally, they are hearing that some property managers are charging up to $100 for applications and are accepting more applications from prospective tenants than the number of available units. Some residents are paying even greater amounts applying for units that they have no chance of getting into – either due to lease requirements or the fact that there are more applicants than units available. The City’s goal is to pass an ordinance that sets parameters for the collection of residential rental application fees for units within the city limits of Boise.
Overview of the draft ordinance:
Requires that before an application can be taken or accepted, the criteria on which the application will be judged must be disclosed, along with the amount of the application fee.
Property owners shall only advertise, take applications and screen applicants for units that will be available within 30 days. If an applicant has been screened, the unit has been offered and a deposit has been placed, it will no longer be considered available and no other applications will be allowed. If a unit is not available, the applicant will have the option to consent to be screened and placed on a waiting list.
Caps application fees at $30 or less and requires property owners/managers to show actual cost. An explanation and receipt detailing how the fee was used and any copies of paperwork or correspondence that were generated as a result of the screening must be provided to the applicant.
Stipulates that current tenants of a unit shall not be charged an application fee to move to another unit under the control of the same property owner.
Further stipulates that violations would be an infraction, punishable by a $100 fine. Second or subsequent violations would be considered a misdemeanor and would be punishable under those guidelines. Complaints of violation must be filed within six months.
IAA Early Efforts:
Over the past 10 days, we’ve had two meetings and attended the City Council work session on September 10. In that session, it was clear that the Council understand these costs to be a part of doing business. What they didn’t appear to understand is the benefit of having these costs borne by the applicant rather than lumped into your overhead and covered via either other fees or rent.
There also appears to be some question around the value of having a cap at “actual hard costs” (not including employee time) versus the challenge of a dollar amount that would require regular review and updating. The cap in the current draft is set at $30. In the work session, there was quite a bit of conversation among the Council Members about setting the cap at an appropriate amount to cover the “hard cost” for the services used for criminal, employment and financial background checks along with reference checks.
Based on our conversations with those involved in the process and comments made by Council Members during the work session, it is clear that the amount in the draft is based on the City’s cost for criminal background checks and does not clearly reflect the full cost of confirming a prospective tenant’s financials, work and reference checks.
Everyone on the Council seems to be on board with the effort, but there are some differing opinions with respect to some details and the cap.
IAA Members Need to Take Action:
It is important that you communicate your concerns to members of the Boise City Council, including Mayor Bieter. It is important that you not quote this document but use it to develop comments to the Council that are personal and reflect the concerns of your business experience in our industry.
The use of fees to cover the costs of getting a prospective tenant approved and into a rental unit brings transparency to the process. Fees ensure that individuals pay for the costs for only those services used to get their background checks completed and rental application approved.
Incorporating those costs into overhead simply hides the cost of getting a prospective tenant approved and drives up the cost of rent.
IAA doesn’t condone predatory landlord practices – they drive up operational costs. We also don’t condone predatory tenant practices such as prospectors who submit applications at multiple rental communities knowing they will only rent one place. This adds cost to the application review and approval process and can hold up getting a rental location filled.
Limiting the ability of landlords to cover the cost of application review through the use of fees eliminates a deterrent that helps prevent tenant prospectors from applying for multiple rental units.
We support transparency in the application process. Landlords should be providing prospective tenants clear information on what is required for an application to be successful or the criteria that will be used to evaluate the application. In addition, the cost associated with the application should also be disclosed.
We support and promote that landlords should only accept and process one application at a time for an open unit. Prospective tenants should not pay for an application processing fee only to be accepted and no unit be available.
Setting a marker of 30 days with respect to defining an available unit creates questions. Is that 30 days until the unit is open and ready for turnover and marketing? 30 days until the unit is ready for move-in? These limitations can impact our ability to run and manage our business.
Landlords are doing more on the front end of the rental process to ensure the success of renting every unit in their community. There are multiple concerns to take into consideration in order to avoid a situation that would result in the need to go through an eviction process. Criminal background checks, work history, financial background checks, references and past rental checks all help to ensure the prospective tenant will not only be able to afford the lease, but also be a successful member of that rental community. Landlords have to take into consideration current residents as much as new residents and the desire to ensure a safe living environment, especially in larger residential communities.
Education of both landlords and tenants on appropriate processes along with ensuring that tenants know the criteria for a rental before applying will do far more to address the problems experienced by some residents seeking rental property.
Caps don’t create ceilings, they create floors and tend to drive up costs overall. Applying a cap of $30, when a landlord’s background services cost upwards of $50 doesn’t serve to lower costs. The cap encourages cost shifts to general overhead, which drives up the other source of revenue – rent.
L. Paul Smith, Executive Director
Mailing address: SW Idaho Chapter of NARPM, PO Box 6836, BOISE, ID, 83707
RentWise Property Management 925 N Main St. Suite A Meridian, ID 83642 (By Appointment Only)