Letting fees: How do they affect you?
Since the Government proposed to remove letting fees altogether, there’s been plenty of speculation about how this will impact the cost of rent. But what we’ve found is that a lot of tenants, and even landlords, aren’t actually aware what it’s there for and how it affects them.
For over 15 years, the removal of letting fees has been discussed, but with the way the rental market is performing, there has been more of a push to have them removed.
So, what are letting fees for?
The purpose of letting fees
Letting fees are considered in general to be a service fee for placing a new tenant into a rental property including:
- Holding open homes
- Reviewing applications and screening prospective tenants
- Preparing documents e.g. tenancy agreements
- Initial property inspections
- Other services to secure a tenancy
But, property managers also provide a service to the prospective tenant by providing convenient viewing times outside normal business hours, something most other industries don’t provide.
Currently, letting fees are part of the costs for tenants moving into a property, so how does it affect them as well as landlords, and how will that change with the banning of letting fees?
As a landlord
If you are an owner-manager, meaning you manage your own property, you cannot charge a letting fee. However, if your property is managed by a property manager – they can charge the tenant a letting fee for their service.
This fee covers the time and all activity taken to process applications and getting a new tenant into the property, and is currently charged to the tenant as a part of their moving in costs.
When letting fees are removed, it could be possible that property managers will either charge the letting fee to the landlord or increase their management fee, ultimately raising the cost of using a property managers’ services.
As a tenant
Typically set at 1 week’s rent + GST (although this can vary), tenants are the ones who usually pay the letting fee, although they don’t often understand what they’re paying for.
Tenants typically need to increase their moving in budget to accommodate for the letting fee where there is one, although they do have a choice whether they want to pay a letting fee or not by choosing a property that doesn’t have one. Last year, 47% percent of rentals were let by owner-managers, and as not all property managers charge letting fees, it can be safely assumed that at least 50% of available rentals did not have a letting fee.
When letting fees are banned, this upfront cost will obviously go, tenants will no longer have to pay the letting fee, however the costs from this may be transferred elsewhere. What is most likely to happen, is this service fee will be passed on to the landlord, who will then pass on the cost to the tenant, which will be reflected in rent increases. MBIE says that this could be an increase of $10 a week, and Andrew King from the Property Investors Federation estimates the rise could perhaps be even smaller.
Importantly, we at Nice Place Property Management use the letting fee to cover the costs associated with viewings after hours and in weekends. If letting fees were to go, then viewings may be limited to working hours on week days only. In order for convenient viewings to remain available, we may see property management companies charge for viewings after hours or during weekends.
It’s important to remember we are providing a service to bring a new tenant into a property, and like all service providers, we need to be compensated for our time and skill set.