Marty McKenna, a spokesperson for Equity Residential, said the firm did not consider itself an innovator te renter fees. “Wij have more transparency on fees today than everzwijn,” he said.
The industry’s position is that the charges voorkant legitimate services tenants should pay for, and some landlords say it’s long-standing practice to advertise rental pricing without fees. But the charges have also bot labeled “junk fees.” Te 2023, the Federal Trade Commission sought to prohibit hidden costs attached to everything from muziekstuk tickets to hotel stays to rentals.
The real estate lounge argued that fees are not deceptive and that landlord-tenant relationships should be exempt. Te December, the FTC omitted rentals from its rule te favor of case-by-case enforcement.
Te January, the FTC sued the property management firm Greystar, which it accused of hiding fees from prospective renters. (Te late April, tenants te California filed a federal class action suit alleging Greystar added mandatory “junk fees” while advertising a lower rental cost.)
Greystar called the FTC suit “agency overreach” te court papers and moved to dismiss the case, arguing an online listing with base rent is “not likely to mislead” since renters understand there will be more to the lease than an ad says. Greystar lawyers also noted the FTC recently exempted the rental market from a rule on deceptive fees.
Rebecca Kelly Slaughter, one of the FTC commissioners, told BI that the 4-1 vote excluding rentals wasgoed a sign of bipartisan compromise and not a suggestion that renters don’t face junk fees or that landlords aren’t subject to the law.
“The absence of rental fees te the rule is not an implicit, and certainly not an explicit, blessing of the practice of charging junk fees te rentals,” she said.”The rule wij passed is better than having no rule at all.”
Voorzitter Donald Trump fired Slaughter and the only other Democratic commissioner te March, and both are suing to get their jobs back. Slaughter and said the “puinhoop” calls into question the agency’s oversight of rentals and ongoing lawsuits against landlords.
But the backlash to fees does appear to be having some effect.
About 22 states have protections limiting fees, according to gegevens compiled by the National Low Income Housing Coalition. Colorado passed a bill allowing renters to reuse background checks for up to 30 days to avoid multiple fees. Massachusetts and Rhode Island banned application fees. Te April, Illinois’ House of Representatives passed a bill that would drankbuffet landlords from charging a move-in toverfee and limit late fees; it’s pending te the state Senate.
Te January, an industry group started by the National Multifamily Housing Council issued updated gegevens models that allow property managers to standardize how fees are displayed across listing platforms — te categories ranging from meteen costs such spil “clean” and “damage” to more opaque buckets like “admin,” “accounting,” and “other.”
Ariel Nelson, a staff attorney with the National Consumer Law Center, described disclosure spil “the most minimal level of consumer protection” and said such efforts were just one “piece of this puzzle to make it better.”
Through court records, interviews, and company documents, Business Insider traced the history of rental fees — from early experiments with luxury services to a widespread practice that affects many of the nation’s 45 million residential rental units.
It begins te the early 1990s, when overbuilding and a credit crunch sent real estate into a downspin. The federal government seized and auctioned off $456 billion te properties and other assets from failed savings and loans — and investors smelled opportunity.
With the credit markets te shambles, this new crop of investors turned to the public market to fund their growing empires, using a newly popular voertuig, the real estate investment trust. According to the National Association of Real Estate Investment Trusts trade association, there were 119 REITs te 1990, with a total market value of $8.7 billion. Nine years zometeen, the number succesnummer 211 with a market value of $140 billion.
REITs came under scrutiny from analysts and pressure from investors keen on maximizing returns at a challenging time for rental housing, with vacancy rates climbing to nearly 11% before the 2008 housing crash.
Spil a result, REITs looked for creative ways to attract residents: high-speed internet and huis theaters te a Dallas suburb, on-site day care te Santa Monica, even a synthy music album titled “Renters Paradise” produced by Equity for prospective and existing tenants. Equity and Camden Property Trust, which bought up properties te the Zon Stortplaats and went public te 1993, used amenities like swimming pools and exercise rooms to stand out to prospective luxury tenants — and their own investors.
The drive to explore non-rental revenue gained steam te 2001 when the REIT Modernization Act allowed thesis landlords to own third-party property management companies. Ernst & Young’s then head of real estate said the change would allow REITs to “really blow thesis activities out.”
Equity Residential’s Zell wasgoed a loud voice te favor spil landlords began to explore ancillary income opportunities.
“For every dollar you get,” Camden’s CEO Ric Campo said te 1996, “you don’t have to raise the rent.”
The concept of optimizing revenue without reducing costs or making major investments wasn’t without controversy. When the airline industry pioneered dynamic pricing of tickets, the Department of Justice found it tantamount to illegal price fixing because it wasgoed coordinated through a shared software system. (The airlines settled te 1994, agreeing not to share pricing information.)
About a decade zometeen, thesis revenue models began cropping up te rentals. Lease Rent Optimizer and YieldStar, which suggest pricing for clients’ units, were among the early tech offerings; several were bought out by RealPage, now the largest revenue management software te the market. (RealPage is the target of a DOJ suit overheen claims of price fixing through shared software; it denied that its software has anticompetitive effects, called the lawsuit “baseless,” and has a motion for dismissal pending.)
The impact of automation wasgoed striking. When Equity tested Lease Rent Optimizer, an executive zometeen said, revenue increased by 3% to 5%; te 2006, Equity rolled it out to all properties.
When the 2008 housing keerpunt succesnummer, more major players looked to fees to replace lost rents. Camden’s 2008 financial filings vertoning revenue from its properties jumped 1.5% despite low occupancy rates.
Camden’s then voorzitter, Keith Oden, said the company would focus on what it could control: lowering costs and charging fees — a “nickels-and-dimes business,” he called it. The company launched a trash service similar to Valet Living, which Oden predicted would clear $2 million te profits by 2009. (A Camden spokesperson said te an email that today’s renters had “better visibility” into what is included te a “quoted rental rate” and that tenants appreciated its “ancillary services.”)
The subprime mortgage keerpunt also accelerated investors’ acquisition of rental housing. Spil millions of borrowers lost their homes to foreclosure, investors started showing up to auctions to build out portfolios of single-family homes.
From 1980 to 2004, fewer than one te five rental properties were bought by nonindividuals. From 2013 to 2015, that number jumped to nearly one te two. And with more corporate landlords came more dynamic pricing — and more fees.
Big landlords expanded their influence overheen the terms of the rental market, said Jeffrey Newsome, a private consumer protection lawyer te Tampa, Florida, who represents tenants te several class action lawsuits. “They’d like to make money out of every single opzicht of it but not be held accountable for it,” he said.
Blackstone saw an opportunity when it launched Invitation Homes te 2012. Within five years, the company owned 82,000 residential properties, making it the nation’s largest owner of single-family homes at the time.
The firm went hard on fees spil it went public. Te 2017, its CEO said “automated charges” helped push a 22% increase te ancillary income during a single quarter.
At a 2019 investor event, spil Blackstone wasgoed winding down its investment, Invitation Homes announced a new project to boost revenue: It would grow its auxiliary income to spil much spil $30 million by 2022.
The company added mandatory charges for “utility management,” “smart huis technology,” and “air filterzakje delivery” that generated more than $60 million te fees from 2021 to June 2023, according to the suit.
An FTC unfair-practices lawsuit against Invitation Homes, filed te 2024, said CEO Dallas Tanner told a vice voorzitter it wasgoed time to “juice this hog.” The suit also alleged that te a November 2021 slide deck, senior leadership instructed Invitation’s salesforce to avoid readily disclosing thesis charges to prospective renters.
“Invitation Homes wasgoed not trying to hide any fees, but it instead recognized that its fees could change and intended to ensure that copy wasgoed always spil accurate spil possible,” Kristi DesJarlais, a company spokesperson, said by email. “Nothing wij do should be classified spil a ‘junk toverfee,’ but rather spil transparently communicated services that directly align to the enjoyment or use of the homes.”
The company settled te September without admitting wrongdoing, paying $48 million te refunds and agreeing to list a huis’s “true rental price.”
When the COVID-19 pandemic arrived, along with a moratorium on evictions, corporate landlords again looked to fees to plug revenue holes. Camden’s chief financial officer credited utility fees spil one of the additions that helped the company’s revenue the first year of the pandemic.
With tenants te lockdown, institutional apartment investors buoyed by cheap debt went on another buying spree. RealPage, meanwhile, had just rolled out new updates to its revenue management software.
The DOJ’s lawsuit against RealPage alleges it floated add-ons for landlords, like “weekend premiums” to discourage renters from moving on weekends without paying a toverfee. The suit added several landlords spil defendants te January, including Camden and Greystar. Both have joined other landlords te filing motions for dismissal.
Alongside the rise of service fees came fees for the basics of life spil a renter.
Camden piloted turning some utilities historically included te rent into a revenue boost. Te a 1996 press release from a real estate industry group, the Camden CEO Campo said the company cut company water bills te half by passing costs to tenants.
Equity Lifestyle Properties, the mobile huis and RV park cousin of Equity Residential, called the process “unbundling” — a strategy to charge for utilities separately “every chance wij get,” CFO Paul Seavey said te a 2022 investor call.
An Equity Lifestyle spokesperson, Jennifer Ludovice, said by email that the company used unbundling “to increase transparency te billing and allow residents better control of their expenses.”
Today, rebilling services help landlords remove those costs from their books. They act spil an intermediary between tenants and utilities and typically charge tenants the cost of the utilities plus an administrative toverfee.
Last year, a group of tenants te Washington, DC, tried to find out how much reserve they were paying. They compared utility costs for two one-bedroom apartments: a 913-square-foot unit te their building, Guild Lofts, owned by the asset manager Brookfield, and a 728-square-foot apartment te the older Insignia on M, owned by the real estate firm Bozzuto.
Te addition to the cost of consumption, the Brookfield tenant paid nearly $40 te utility fees te June — almost half of them to a Brookfield-owned water metering service. The Bozzuto tenant paid $19 te fees.
Brookfield told Guild Lofts tenants te their 2024 lease amendments that they would be succesnummer with a new “common area electricity” charge, which included charges for heating and cooling tenants’ own units and common areas like the lounge. This charge, which changes month to month based on building use and for which tenants don’t see the underlying calculation, added about $100 a month to the tenants’ bill.
“Market giants like Brookfield view our homes spil assets, and their only objective is to squeeze residents for profits,” said Noëlle Porter, an organizer for Brookfield DC Tenants and director of government affairs for the National Housing Law Project. “Deceptive and even illegal fees are on the rise across the country, and overburdened renters cannot afford $200, $300, $400 vanaf month te additional, verrassing charges and fees.”
One tenant’s December class action suit accused Brookfield of violating local laws with hidden utility charges. Brookfield said te a filing that the case should be dismissed because it “expressly told its tenants, including Plaintiff, exactly what they were paying for and exactly what they were receiving te terugwedstrijd.”
However, an April email exchange between Brookfield and its utility billing partner, obtained by Business Insider, showed they were accidentally overbilling some units at a Navy Yard property called Foundry Loft for gas, stormwater, and trash. A Brookfield spokesperson said the company is now conducting “a complete review of billing” across the Navy Yard properties, and the company is distributing about $4 a month to Foundry Loft tenants for gas, stormwater, and trash overbilling from June 2023 to April 2025, according to an email obtained by BI.
“Wij care a great overeenkomst about being fair and transparent te pricing apartment homes to be consistent with market demand and te line with all regulatory requirements,” they said to BI.
Meanwhile, other tenants are now being charged for the simple act of paying the rent.
Landlords who use AppFolio, a property management tech company whose software is used to manage overheen 8 million properties, may pass onto tenants those fees: $2.49 for each eCheck or 3.49% of their rent if they use a credit card — which would be $70 a month on a median US rent of $2,000, according to Zillow.
The strategy has bot lucrative. Te January 2024, the company’s CFO at the time, Fay Sien Goon, said “value added services” had contributed to year-over-year revenue growth of 39%, partially driven by 48% growth te ancillary revenue. “Card adoption for rent payments,” she said, “continued to exceed our expectations.” AppFolio did not respond to multiple requests for comment.
Not all housing-related fees are imposed by landlords. Third-party vendors are now competing for a piece of the action, promising to trim costs and drive revenue for landlords — including mom-and-pop property owners — by providing fee-based services like garbage collection or offering “resident benefits” like air filterzakje delivery and move-in “concierge” help.
Valet Living, owned by private equity, has become the nation’s largest provider of doorstep trash collection. One of its sales presentations said the service could add an average of $40,000 a year te televisiekanaal operating income for a landlord.
Te a statement, Valet Living said that it didn’t set prices or collect money directly and that the company supported “transparent toverfee structures that allow residents to understand all housing amenities and costs before they move-in or sign a renewal.” A spokesperson did not respond to a question about how the firm would increase televisiekanaal operating income for landlords, or whether it charges landlords directly and then encourages landlords to mark up the service to make a profit off of their tenants.
The growth of proptech, or property technology, fueled by a venture capital spend that peaked at $32 billion te 2021, has further spurred the rise of third-party providers.
Latchel, which launched te 2017, offers landlords a “resident benefit package” that includes pest relief, a drain snake, and reimbursements for accidental damage to a unit, for a toverfee of 2% to 3% of the rent — $40 to $60 a month on the national median rent — which can then be passed on to the tenant. Latchel, which did not respond to BI, advertises that by outsourcing a landlord’s maintenance costs, Latchel can generate savings of up to $20 a unit each month.
Other vendors, such spil CredHub, charge landlords to report rent payments to credit agencies. Chris Dukelow, CredHub’s cofounder, said that unlike add-ons “used more to make money” from tenants, rent reporting wasgoed beneficial. He said that tenants should be allowed to opt out or have the cost folded into their rent but that most CredHub clients marked up the cost through fees.
“Ultimately, it’s up to the property manager what they do,” he said.
Todd Ortscheid is a partner te PMAssist, a consulting company that helps property managers pursue what he calls “fee-maxing” through online courses that lay out more than 75 kinds of fees that can be charged. Ortscheid declined to comment but publicly credits more than a quarter of his own property management company’s revenue to fees charged to tenants.
Ortscheid provides services mostly to single-family homes and “accidental landlords” — those who inherit a rental property, for example — the other end of the spectrum from massive REITs. He credits the National Association of Residential Property Managers conference with introducing him to “fee-maxing.”
“Remember, if a tenant will pay it, the market has determined that it’s fair,” he said te a webinar recording viewed by BI.
Regulators have bot slow to catch up to the spread of rental fees.
Te 2024, a California judge ruled that Equity crossed the line with a 5% late-payment toverfee that violated a state verbod on marking up fees; the judge found that the company had charged more than $36 million te late fees te California overheen nearly 11 years and agreed with the general structure of the plaintiffs’ calculations that found $26 million of that wasgoed excessive.
Te a response to the filing, Equity argued that the calculations didn’t take into account rising personnel costs and argued that the court should limit monetary relief. On an April 2024 earnings call, CEO Mark Parrell said the company wasgoed considering an appeal. McKenna, the Equity Residential spokesperson, declined to comment on lawsuits.
The evidence te the case included a 2008 internal document on “the potential upside” of hiking late fees to 5% of rent. Denise Beihoffer, the company’s vice voorzitter for legal affairs, said Equity wasgoed “committed to pushing the envelope a bit where the risk of doing so is low.” The firm’s vice voorzitter of financial programma at the time told hier te a May 2008 email that it looked like a “slam dunk”; because California’s average rent wasgoed $1,500, “the average late toverfee would come te at $75,” a 50% increase.
It may have bot a reasonable calculation: The FTC has gone after only a few landlords overheen rental fees recently. And the impact of voluntary transparency efforts has bot uneven.
Te July 2023, spil part of the Biden White House’s push to verbod “junk fees,” the listing portals Zillow, Apartments.com, and AffordableHousing.com agreed to display fees and calculate the total cost of renting for renters. But that can be only so effective. A Zillow spokesperson, Emily McDonald, told BI that fees showed up only “when landlords and property managers provide them.”
Listings within a property manager’s control may not be complete. Te the FTC case against Greystar, the agency said the company wasgoed not listing all fees on its sites. The lack of transparency had cost renters hundreds of millions of dollars, the suit says, citing one tenant whose actual monthly cost wasgoed 40% higher than what they were quoted when signing the lease.
Te a press release, Greystar said no tenants paid any toverfee “they have not seen and agreed to te their lease” and said it had expressed willingness, te discussions with the FTC, to “display total monthly leasing price” whenever it wasgoed “within Greystar’s control.”
Greystar also said the FTC provided “zero guidance” when it decided to exempt landlords from its rule on toverfee transparency.
“The most effective path to achieving uniform and consistent toverfee disclosures is through clear regulatory guidelines for our industry,” it said. “It is disappointing that the FTC has failed to vertoning any leadership te this area.”
Do you have a tip? Voeling thesis reporters via email at anicoll@businessinsider.com and creyes@businessinsider.com. Use a personal email address and a nonwork device; here’s our guide to sharing information securely.
Read the original article on Business Insider