What’s Next for Junk Fees? The Industry Weighs In
Leaders assess the impact of the White House's plan to target some common charges.
Compared to many other issues, so-called “junk fees” are not ordinarily a top policy priority for the multifamily industry. But that may be changing. In a potentially far-reaching move, last week the Biden Administration announced that it would target a variety of fees ranging from pest control and applications to credit checks.
Industry leaders were quick to raise red flags and challenge the characterization of many items cited in the proposal. “There is a difference between “junk fees” and legitimate fees that a property owner charges residents for services beyond what the rental payment covers, so not all fees in rental housing are ‘junk fees’,” Sharon Wilson Géno, National Multifamily Housing Council (NMHC) president told Multi-Housing News. “More importantly, the vast majority of professionally managed property owners and operators already disclose fees voluntarily in the lease and application process and comply with state and local laws.”
Along with the U.S. Department of Housing and Urban Development (HUD), the Biden Administration announced several rental housing search platforms’ commitment to increasing the transparency of junk fees where some property owners and operators may not be disclosing the full unit price.
Zillow, Apartments.com and AffordableHousing.com have agreed to make more accessible tools on their online platforms for renters to evaluate the full price and associated fees of a unit. For owners listing on AffordableHousing.com, listings will be required to disclose all fees and charges upfront. Apartments.com is launching a new calculator to determine the all-in price of a home and Zillow is launching a Cost of Renting Summary on its listings.
Citing a report by the National Consumer Law Center, a nonprofit group that advocates for low-income and disadvantaged people, the Biden administration also wants to battle these fees by increasing awareness about the impact of rental housing junk fees on housing stability.
Action is also being taken at the state level. Colorado, Rhode Island, Minnesota, Connecticut, Maine, Montana and California have all enacted or passed files, bills or documents to address hidden fees.
Multifamily weighs in
Fee transparency is largely accepted in the multifamily industry. Some multifamily and real estate experts believe the conversation about junk fees need to be further explored.
“What many borrowers don’t understand and appreciate is that there are many legitimate fees that lenders collect for various third-party services,” Stephen A. Sobin, president at Select Commercial Funding LLC, told MHN. “These might include appraisals, environmental reports, engineering studies, legal, title, recording fees, flood searches, insurance and tax escrows, etc. Fees paid to independent third-party providers are not junk fees.”
Sobin noted that, on the other hand, lenders often charge fees for services such as processing, review, and underwriting. He believes that borrowers should know their rights in negotiating all loan terms and that lenders have the obligation to disclose all fees.
In terms of the impacts of further transparency, some believe there will be positives while others don’t anticipate much of a change.
“I foresee a newfound commitment to increase more upfront and honest costs across industries and products,” Henry Manocheri, CEO of Universe Holdings said. “Consumers with increased transparency will be able to compare prices across products and decide the option that yields them the best value in return.”
NMHC strongly supports full fee transparency between residents and housing providers. Given that the commitments made to fee transparency were voluntary, Wilson Géno does not believe the announcement will have much effect on rental housing fees.
“Any impact on rental housing businesses is to be determined, but the relationship between residents and housing providers is already tightly regulated at the state and local levels, so really significant changes are probably unlikely,” said Wilson Géno.
Bob Pinnegar, president & CEO of the National Apartment Association, emphasized the industry’s support for increased transparency, as well as for dialogue between residents and multifamily operators. But he also observed that services come at a cost, which is spelled out during leasing and in leases. Pinnegar called for policymakers to acknowledge the industry’s “operational realities” and the contribution of fees to the viability of housing.