by Kevin Juhasz
Time is indeed money for busy Americans. People have grown accustomed to paying a premium for convenience, readily accepting fees of 10% to 20% to simplify their lives. Whether it’s grocery delivery, meal kits or streaming services, consumers have shown they’re willing to pay extra for added value and time savings.
But when does a convenience fee become a junk fee? As federal and local governments scrutinize various charges in industries, it’s crucial to distinguish between unnecessary costs and fees that genuinely reflect the value of premium services and amenities.
The “Junk Fees” Debate
The multifamily sector was excluded from a recent push to eliminate what some call “junk” fees across various industries. However, the industry thoroughly recognizes consumers’ impressions of fees and transparency, and the National Multifamily Housing Council is addressing their frustration.
“NMHC has long been committed to enhancing renter choice and transparency through the creation of the Multifamily Information Transaction Standards (MITS) data model. MITS, originally released in 2003, has helped many rental housing providers enhance the effectiveness of technology and make it easier for renters to understand fee structures. Following months of work and public comment, MITS has issued new updates that further improve the model and improve the rental housing experience.”
The new updates to MITS bring together “rental housing providers and suppliers to collaboratively identify opportunities for operational efficiency and transparency that benefit renters and housing affordability.”
So, what exactly constitutes a “junk fee?” A solid definition remains elusive for now.
Under the Biden Administration, junk fees were defined as:
- Charges that don’t correspond to a specific service or benefit
- Fees that lack transparency or are not clearly disclosed upfront
- Costs that seem excessive compared to the service provided
According to the CPT Institute, legitimate fees are those that:
- Cover actual operational costs
- Provide a tangible benefit or service to the resident
- Are transparently communicated and agreed upon
While the intent of these actions is to protect consumers, there’s a risk of oversimplification that could impact the quality and range of services property owners and operators can offer. Blanket approaches to the issue may not account for the nuanced reality of property management and the diverse preferences of residents. The reality is that the industry is aware of the controversy over fees and is working toward ensuring a transparent system that makes all prospects of their presence.
The Operational Reality
Many of the fees in multifamily are not just justified but necessary for efficient operations, and application fees are a good example. When a prospect applies for an apartment, the application fee covers numerous operational costs, including the time it takes for teams to process and review applications, supply costs, expenses associated with background and credit checks and the software, technology and vendor costs for secure handling.
Pet rent and pet fees are an example of where it’s possible to cross the line. Charging monthly pet rent may carry the perception that the owners or operators are just making money off the presence of a pet, giving it the perception of a junk fee. Upfront pet fees or pet deposits, in contrast, can be easily explained to cover costs. This includes additional wear and tear on a unit, potential deep cleaning costs and the addition and maintenance of pet-friendly amenities like dog parks, waste disposal stations and pet washing stations.
Technology solutions, including smart apartments equipped with smart locks, thermostats and leak sensors, are more than convenience items for residents. IoT delivers a significant benefit to renters and, therefore, validates additional fees. For example, Buckingham Companies, a real estate investment firm that manages more than $3 billion in assets, has installed 5,400 smart home technologies across 34 of its communities, including access control and smart apartment features.
“We work diligently to ensure that a service or technology is desired by our residences and creates convenience and or value,” said Ian C. Bingham, senior vice president of business development for Buckingham. “Between our vetting process of value and convenience and transparent approach, we work hard to ensure that our fees are not considered junk.”
The key to keeping fees from being considered junk is to be honest with prospects and residents and fully disclose their purpose upfront. Depending on the phrasing and transparency, residents are more likely to pay the additional cost. This type of transparency also prevents these charges from being incorrectly perceived as “junk.”
Making It Optional
Another way to avoid the notion of junk fees is to allow residents to opt in. Operators can increase the overall resident experience by making certain amenities optional or creating tiers that are most relevant to their lifestyle and budget.
Offering options and giving residents power demonstrates that companies desire to offer premium amenities to residents and that owners and management are receptive to their financial status.
Elevating the Living Experience
The other conversation around fees revolves around charges to residents for premium amenities. Numerous renters are looking for services that make their multifamily more convenient and more enjoyable. These fees can be easily justified because of the associated expenses. Examples of these services include:
Concierge Services—This provides residents with various helpful services, including food delivery assistance, amenity reservations, neighborhood information and directions and more.
Third-Party Package Management—With the rise of online shopping, package management has become a significant challenge for many properties. A third-party package delivery service offers secure storage, notification of delivery and convenient delivery options.
Co-Working Spaces—The rise of remote work has created a high demand for co-working spaces within residential properties. These spaces require upkeep and may incur additional rental fees.
The key to navigating the fine line between junk fees and valuable amenities lies in transparency, fairness and providing genuine value. Leasing teams must clearly outline all fees and what they cover before lease signing.
“At Buckingham, we are embracing package management when possible, requiring that all delivery services go directly to our residents,” said Bingham. “This is often billed in the industry as a convenient living fee, and residents want packages delivered right to their door.”
Fees Will Still Be a Challenge
Unfortunately, the recent FTC ruling hasn’t stopped the government from taking action against multifamily over fees, which is why multifamily owners and operators must remain vigilant about them. In early January, the Federal Trade Commission announced legal action against Greystar, alleging deceptive advertising and hidden fees. The FTC and the Colorado Attorney General state that Greystar violated the Federal Trade Commission Act, the Gramm-Leach-Bliley Act and the Colorado Consumer Protection Act.
In response to the FTC’s action, Greystar said, “Rather than working with Greystar to help drive meaningful improvements for consumers in the rental housing industry, the FTC has opted for headline-grabbing litigation in the waning days of the [Biden] administration. The complaint is based on gross misrepresentations of the facts and fundamentally flawed legal theories. We will vigorously defend ourselves against this lawsuit.”
The NMHC also weighed in on the FTC’s action, releasing a statement encouraging the commission to avoid costly litigation that threatens to push housing costs higher. The organization also emphasized the proactive measures multifamily is taking regarding fees and transparency.
As multifamily evolves, so too will the conversation around fees. It’s also important to continuously assess resident desires and needs to see what premium amenities can be adjusted or replaced. The most successful properties will be those that can articulate the value of their offerings clearly and deliver on their promises consistently. It’s a balancing act of providing desirable services while maintaining transparency and fairness. In the end, the goal should be creating living spaces that enhance residents’ lives, foster community and provide real value – not just a list of amenities for the sake of justifying higher costs.