The latest cottage business: app fees

When Divanny Lamas decided to move to San Francisco from Silicon Valley, she knew the hunt for an apartment would be competitive-but it was far worse than she imagined.

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At a “nice” $3,500-per-month loft in the Mission, “80 people showed up for the open house,” said Ms. Lamas, 23, who recently began working at a tech company in SoMa. “And the landlord said to me that he’d gotten 250 applications.”

The cost of applying was $40, so if the landlord wasn’t exaggerating, he grossed $10,000 in application fees.

Call it a deposit with no return.

Two years ago, during the recession, landlords had to lure applicants with deals, like a free month’s rent. Today fees just to apply have become part of the city’s overheated rental climate, where dubious behavior- by both landlords and renters-appears to be increasing.

Lamas searched hundreds of vacancy listings and ultimately visited 20 apartments,many charging an application fee. After four months, she finally secured a $2,500- per-month, 600-square-foot, one-bedroom in the Mission.

“Everything was overpriced,” she said.

In a city with a chronic housing shortage, a confluence of recent trends has created one of the tightest rental markets in years. The vacancy rate is just 3.7 percent, and the average rent has skyrocketed to $2,572.

Experts cite various factors: a population increase of nearly 30,000 since 2000; an influx of affluent tech workers; traditional buyers becoming renters due to housing prices and financing uncertainties; and a surge in apartments converted into vacation rentals to skirt rent control laws.

Andrew Poon, 30, said that 15 out of 20 apartments he visited during his apartment hunt this summer charged application fees. “Some of them required a fee outright and charged it immediately,” he said. Others asked for a fee only if he became a finalist.

Determining the exact prevalence of application fees is difficult, since few landlords and brokers are transparent about the charges in their advertising.

A Bay Citizen analysis of recent listings on Craigslist-the city’s leading rental listing resource-showed that only 4 percent of apartment rental ads (80 of 2,053) disclosed a fee and the amount required. Charges ranged from $20 to $45, averaging $32. (The analysis was conducted Nov. 9 of listings from Nov. 2 to 9.)

Only 3 of 2,053 listings specifically stated there was no application fee.

Janan New, director of the San Francisco Apartment Association, a group representing landlords, said landlords were allowed to charge fees to cover processing costs and for credit and background checks. When asked about charging fees to dozens or hundreds of applicants when only a few would be genuine finalists, New said, “We discourage that.”

The competition for apartments has also led to bid-up prices. Poon eventually rented a 600-square-foot, one-bedroom near Duboce Triangle after offering $100 over the original $1,750-per-month price. “There were 40 applicants,” he said.

But as landlords push for more, some renters are pushing back.

Marc Levinson, a Realtor in the city since 1991, said that in recent weeks some frustrated renters had apparently figured out how to remove listings after reading them on Craigslist by misusing the Website’s system for deleting inappropriate content. Presumably, their goal is to prevent others from seeing the ads-and to reduce potential competition.

“There’s so much anger at the rental market,” Levinson said.

To thwart this tactic, Levinson’s listings now instruct applicants to call for openhouse details. One listing he placed at 9:20 a.m. generated 40 calls in two hours.

Levinson expressed concern about the explosion in application fees, and said landlords and brokers should charge only finalists- and limit the fee to the actual cost of a professional credit report, about $20. Applicants should ask for copies of their reports, he said, to be sure they had not been exploited.

For those who feel cheated it is unclear what steps to take. The city’s Rent Board, which otherwise vigorously defends tenants’ rights, has no jurisdiction and could not recommend a course of action.

Scott Wiener, a city supervisor who serves on the Land Use and Economic Development Committee, which oversees housing matters, agreed that application fees should be charged only to finalists.

Wiener said the fees were symptomatic of a larger issue: a dearth of affordable housing to meet growing demand.

“We have a very, very tiny amount of land,” he said, “and it’s the best city on the planet.”

Indeed, despite the frustrations and expense, those who have prevailed in the latest rental machinations feel victorious.

“Ultimately,” Lamas said, “it was all worth it.”

Author: Scott James, The Bay Citizen