Tenant Screenings
Tenant selection may be a landlord’s most important business decision, one that can have significant impact upon his entire rental operations. By taking a controlled, systematic approach to tenant screening and selection, a landlord will minimize the risk of a bad tenant. A bad tenant can mean lost rental income, property damage, and court actions.
Tenant screenings are risk assessment practices to identify and evaluate known or reasonably foreseen risks as presented by a rental applicant. Tenant screening is a landlord’s due diligence to protect his business and property, and his duty of care to tenants and their property.
Filling a vacancy as soon as possible is high priority in property management. However, higher priority should be given to filling a vacancy with a qualified good tenant. That is the real goal – to attract and retain tenants who qualify to rental standards.
Setting rental standards and conducting appropriate screening assessments becomes a core business function.
Rental Standards
Formalized written rental screening and selection standards set out minimum qualification requirements for tenancy. Typically these requirements specify a minimum gross monthly income, a satisfactory income-to-rent ratio, verifiable current employment, positive references from previous landlords, personal references, satisfactory credit report and debt payment history, no history of illegal drugs or illegal activities, no derogatory public records, and satisfactory background checks.
A landlord must set his rental standards to meet his business requirements. Generally a good tenant is described as a tenant who demonstrates the ability and willingness to pay market rent, take good care of the rental property, and respect his neighbors, both tenant and non-tenant. These three demonstrated behaviors are the base line standard most landlords consider in tenant screening and selection. Additionally a landlord may screen for the likelihood of stable income/employment for the near future; no history of property damage; no reported lease violations; and no recorded evictions.
Setting high standards can in theory help minimize risk. However standards that are too high can reduce the applicant pool and extend vacancy periods. Standards should be objective, measurable, and relevant to the applicant’s performance as a tenant. The rental qualification criteria should point to the important issues of the rental business – as examples, the ability to pay the advertised rent, acceptable credit history, and satisfactory previous landlord references.
Screenings
Most landlords would agree that some measure of tenant screening is necessary to protect their business investment. Any screening, legally compliant and supported by valid business reasons, is beneficial in protecting the interests of people and property. What types of tenant screenings and type of delivery method is an independent business decision typically based upon management experience and business need. The important key in tenant screening is consistency in methodology, criteria, analysis of data, evaluation, and selection regarding any and all rental applicants.
All screenings must be compliant with applicable federal, state, and local laws for anti-discrimination protections, consumer protections, and use of consumer reports. State landlord-tenant statutes may also regulate or restrict certain types of screenings. Landlords are held responsible to comply with applicable laws and ordinances.
Tenant pre-screening begins when the vacancy is advertised to the public. The media copy usually provides basic property facts such as the property address or neighborhood, number of bedrooms and bathrooms, rent amount, deposits, availability date, and/or pet policy. Those individuals viewing the vacancy listing may use this advertised property information to screen themselves as to their interest, budget needs, and suitability of the rental unit for their family.
A prime consideration in advertising vacancies is to make sure the advertising is compliant with fair housing advertising. The Fair Housing Act makes it unlawful to make, print, or publish any notice or statement that indicates any preference, limitation, or discrimination based on the federal protected classes of race, color, national origin, religion, sex, familial status, or handicap. The listing should use descriptive statements of property facts to avoid claims of discriminatory advertising.
In addition to federal fair housing laws, there may be state and/or local fair housing laws which offer greater protections through additional protected classes or characteristics. A landlord is required to comply with fair housing laws at the level that provides the greatest anti-discrimination protections to applicants.
The pre-screening process continues as potential prospects make initial contact with the landlord to inquire about the vacancy. For those individuals that express interest, a personal interview or open house showing may be the next step in the tenant screening process.
The screening process should be tailored to fit the business needs. What type of information is screened (e.g., identity, credit, criminal conviction, public records) is a business decision. How a landlord screens is determined by business preferences and the resources he has to conduct in-house screenings or to request reports from third party screening providers. Who is screened is non-negotiable because a landlord must screen all applicants using the same criteria in the same manner. Failure to do so is discrimination.
Periodic review of standards and evaluation of screening methodologies should be conducted for compliance with regulatory requirements. It may be beneficial to also periodically research latest technologies for more efficient or effective modes of screening offered by service providers.
Conventional screening follows completion of basic qualification activities; i.e., identity verification, prospective applicant interview and satisfactory answers to minimum stated rental requirements, and preliminary review of the completed, signed and dated application form.
All applicants should sign the consent to release information form that authorizes the landlord to verify credit, employment and any other information, including that contained on the application, from a credit bureau, from the creditors directly, from employers, financial institutions, and prior landlords, and from providers of eviction and criminal records. Included in the release form should be a statement that the applicant’s permission includes obtaining updated reports, survives the expiration of tenancy, and can be used for any legal purpose associated with the tenancy.
Many landlords focus attention on credit reports as their primary tenant screening tool. However additional screenings are recommended to provide a big picture view of applicant behaviors other than just financial management.
Some landlords express the opinion that the more information the better when screening applicants. However, it is not the collection of information that assures a good tenant. It is the understanding of the business and operational requirements and requesting the type of information that, when adequately analyzed, provides the data for an informed decision.
While each screening is a separate independent informational report, it is the objective evaluation of the totality of informational reports that provides a broader view of applicant behaviors over time. It is the applicant’s willingness, ability, and demonstrated commitment to meeting obligations that will work in his favor to advance as a qualified candidate for tenancy.
The selection of a qualified applicant is the final step in the application/screening/evaluation process. With adequate due diligence a landlord should be prepared to offer tenancy to a well-qualified and motivated applicant.
In reality there is no perfect tenant, no foolproof screening process, and no way to accurately predict an individual’s future behavior. However past behavior patterns are recognized as an indication of future behavior patterns. By analyzing the applicant’s reported historical data for credit management, rental housing, and public records a pattern of behavior may emerge that could qualify the applicant for acceptance or denial as a tenant.
Having a good system in place is not a guarantee of choosing a good tenant; however, it does maximize the chances. With a plan in place a landlord is not likely to forget an important screening assessment, rush to judgment, or become emotionally involved with the prospective tenant’s situation.
The goal in utilizing tenant screening is to make a good business decision, one that protects the rental investment and does not incur liabilities or violate the law.