Screening Prospective Tenants
Screening Prospective Tenants
Choosing a tenant to fill a rental vacancy is a critical decision for any landlord. Those landlords that “choose well” often sleep better at night than those landlords who are forced to “choose often” because the first tenant did not work out. As those landlords that choose over and over again find out there are no do-overs, only start-overs, a time consuming and expensive process.
For many reasons, not the least of which is to reduce income loss, a landlord needs a reliable, consistent system of attracting prospective tenants, adequately screening applicants, properly selecting a qualified tenant, and retaining good tenants. For those that choose often, it may seem like a case of easier said than done. However, those who choose well reply that it may not always be easy, but it is simple. They develop a system specific to their business and follow that process each and every time a vacancy occurs. Repetition is not the key here, but rather understanding the filling vacancy process, analyzing what works and what needs to be changed, and incorporating necessary changes or additions for future vacancies.
As a first time landlord you probably researched the subject of tenant screening and drew up an initial plan that you followed. As you gained experience you probably continued to work according to plan but made more allowances as markets, rents, and economies fluctuated. Now you may just know what to do, which may or may not be the same process you initially designed. If you’ve gotten away from following your plan, we suggest you take a few minutes to review the primary objective for filling your vacancy – namely to choose a good tenant who will pay the rent on time, maintain the property in good condition, be a good neighbor, and not cause problems for you. Having a good system in place is not a guarantee of choosing a good tenant; however, it does maximize your chances. With a plan in place you are not likely to forget an important screening, rush to judgment, or become emotionally involved with the prospective tenant’s situation. Your goal is to make a good business decision, one that protects your investment and does not incur liabilities or violate the law. If your existing plan needs updating, be sure it covers the real life lessons (the worst tenant scenarios you’ve dealt with over time) with appropriate lease clauses, screenings, deposits, etc.
Your system is only as good as the foundation it is built upon. That foundation is business law and landlord-tenant laws. Without a firm understanding of applicable federal, state, and local laws, you cannot properly (and legally) set your rental policies and practices. You have a responsibility to keep current with laws. Almost all aspects of rental property management are regulated by laws at some government level, some aspects at multiple levels. As new laws and more restrictions are proposed, the administrative side of landlording may become more burdensome. Knowing the laws, understanding the laws, and complying with the laws can prevent unnecessary legal problems and financial penalties. Knowing the laws can also help you defend against applicant fraud or illegal tenant activities.
As cornerstones of your system, your written documents – the lease, application form, and rent rules – should reinforce your policies and practices. These documents spell out your expectations of a tenant. The lease sets forth the contractual basis of the landlord-tenant relationship and together with the landlord-tenant laws of your state defines the duties and responsibilities of landlord and tenant. Applicants need to know what your rules are – e.g., parking or use of property amenities – in order to decide, even before submitting an application, if your property suits their needs. Landlords should also remember that they themselves as prospective landlords are being screened by prospective applicants.
You will need to establish qualification criteria before you can select a tenant. You can be as choosey as you want to be or willing to take risks in setting your standards. However each and every applicant must be judged against the same standards. In this one instance applicants are all the same. There can be no deviation or variance in your qualification process – every applicant must be treated the same. Federal, state, and local anti-discrimination laws are very specific as to what you can do in screening applicants. You are free to choose your next tenant from prospective applicants as long as you base your selection on legitimate business criteria. For example you can reject applicants with insufficient income to meet rent obligations, have credit histories that show serious delinquencies or collections, are known to have caused property damage at a prior rental address, or cannot meet requirements for security deposits or fees.
Federal Fair Housing laws prohibit discrimination against the protected classes of race, religion, national origin, sex, color, familial status, or disability. State and local fair housing laws may have additional protected classes and thus be more stringent than federal law.
You will need to decide the logical progression of the screening steps to qualify your applicants. Your first screening is always to verify identity. The next step is to review the completed application. Some landlords prefer to run credit reports on all applicants, while others prefer to contact landlord references regarding prior rental history before spending money for a credit report. However, early in the qualification process you will need to verify current employment or other income sources to establish if there is sufficient means to meet rental obligations and ascertain that the applicant has adequate cash resources to pay the security deposit, utility deposits, the first month’s rent, and other costs of moving into your rental unit. This is usually best accomplished by providing upon first contact with applicant written information regarding costs rather than by requiring proof of cash availability. If the applicant just can’t afford it, there is no reason to conduct further screening.
Initial screenings (identity, rental history, employment/income) being done, you’ll want to know a little more about the applicant’s background. This type of screening can include credit history, criminal conviction records search, public records search, eviction records search, and reference checking.
All screenings should be conducted on every applicant of legal age. While the costs of checking multiple occupants can seem burdensome, some of the expense, if allowed by state law and under certain restrictions, can be offset by charging an applicant deposit. This can work to the landlord’s advantage, but conversely, requirement for excessive application fees can reduce the pool of qualified applicants. Accordingly, you may need to absorb part of the processing expense.
You will almost certainly use a tenant screening vendor to conduct your background screening reports. While public records are, well public, personally checking the various types of records thoroughly would require significant time and effort on your part, particularly if your applicant has lived in multiple locations. Entering location data into an online form provided by a screening service is certainly much easier and more cost-effective.
The ease and availability of information that can be provided by a screening service is a real benefit to busy landlords. Also, the quicker applicants are qualified per your standards, the sooner the vacancy can be filled. However, being in too much a hurry to install a tenant (without being satisfied that this is indeed the tenant you want) can end up costing you more than an empty unit.
In our opinion, screening services provide the most efficient and effective means to conduct thorough searches for credit and criminal conviction history. Report formats may vary from vendor to vendor but most are quite detailed and provide sufficient information to aid landlords in their qualification of applicants. Selecting a screening service requires due diligence on your part to ask questions and review sample reports to determine which service meets your business needs. Once you have selected your vendor and signed up for services, it’s simply a matter of choosing the reports you want, entering applicant data, and retrieving your report. While the final determination is entirely your decision, many services offer rental recommendations that you can accept or use as guidance in your decision.