Sound Tenant Screening Leads To Great Tenants

Since great tenants are the foundation of great properties, we are diving into how to tenant screen like a professional.  This 3-part blog series is designed to help build your confidence and enhance your screening strategies.  Our goal is to help you:

  1. Build confidence and perspective by understanding high-level, national screening metrics — Part 1  
  2. Create a foundation of strong screening processes that the professional use in their vetting processes — Part 2
  3. Develop great screening standards (aka “screening acceptance criteria”) — Part 3

Process Tips from the Pro’s

Let’s summarize these first and then go deeper:

  1. Always document your acceptance standards before communicating with any prospects
  2. Communicate your acceptance standards ideally before accepting applications
  3. Create an ‘override’ process
  4. Send Adverse Action letters when applicable

Tip 1:  Document Your Acceptance Standards Before Communicating with Prospects

This is 2-pronged tip encourages you to document and, importantly, when to document.  Many of you know that renting your property is a business and needs to be treated as such.  This is a first step in treating your rental like a business.  

It is important to paper this before communicating with prospects.  With thoughtful, documented acceptance criteria, you’re better prepared to have deliberate dialog and stay focused on what matters. It helps steer you clear of any conversations that are or could be perceived as discrimination (see our Compliance blog).

Benefits:  This practice:

  • Takes the emotion out:  With written acceptance criteria, declining applicants that don’t qualify becomes much easier.  There is no emotional agony or fatigue about should I or shouldn’t – there are minimum qualifications for ‘lending someone this asset’ – and if it’s not a fit, it’s not a fit.  Even when you “bend” or “sway” with good intentions to “help someone out”, it’s discrimination and poor business practice
  • Facilitates compliance:  Though documentation alone doesn’t mean you’re compliant, it is a piece of the puzzle.  With written standards, you should be treating everyone the same way and avoiding discrimination of any form
  • Establishes a baseline that can be adjusted over time:  As macro-economic and other factors change over time, you’ll have a baseline to either tighten or loosen over time (see Part 1)

Tip 2:  Communicate Your Acceptance Standards Ideally Before Accepting Applications

Building on tip 1, ideally, you want communicate your acceptance standards with prospects before prospects apply or even see the property.

  • This could be a phone conversation if someone calls you asking to view the rental.  A solid response is something like “Because I value your time and mine, let me just walk through some of our criteria…and if we have a fit, we can go from there…”
  • Even better, share your Acceptance Standards document with prospects.  This is routinely done in Multi-Family to facilitate efficient use of time for all parties

Benefits:  The benefits to applying this practice are significant:  

  • Compliance:  Again, this will help facilitate (not guarantee) your compliance with Fair Housing.  Setting sound and consistent policies and practices and following them is a good step to avoiding discrimination
  • Time Management:  You will be much more efficient in time management by essentially “pre-screening” when you share your Acceptance Standards before prospects apply.  Only those who are likely to qualify will proceed to apply
  • Scale:  By being more efficient and implementing sound, repeatable practices, you are more prepared and likely to scale your rental portfolio and build wealth faster

Tip 3:  Create an ‘override’ process

The professional firms don’t just allow anyone to override the acceptance criteria in place and move in a declined applicant.  As discussed, the criteria help not only with your financial goals but also Fair Housing compliance. To request an exception, typically, the leasing staff on-site will need to present a sound case to a Regional Manager.   

Act as though you have to go to someone and build a case to overrule your own criteria.  Is it still worth the effort, or will a suitable applicant soon come along?  Ask a fellow colleague or post your case on a forum to get a second opinion.  

Tip 4:  Send Adverse Action Letters When Applicable The above tips will help minimize these situations, but if an applicant is ‘adversely affected’ due to something in the credit/background report, you need to send the applicant an Adverse Action letter promptly.  This can be emailed or mailed.   Technically, it can be a verbal conversation, though it’s best to have written proof in case you need it.  

Until an individual applies, they are simply a prospect, and so for example, relaying that you require a credit score of xxx in advance is good policy.  It’s likely that only those who meet that condition will then apply, thereby likely minimizing the need for Adverse Action letters.  

Benefits:

Compliance:  The main benefit here is compliance with the Fair Credit Reporting Act (FCRA), and it’s the right thing to do.  At it’s core, the FCRA is meant to educate consumers on how their backgrounds and credit reports are impacting their lives, and give them a chance to remedy any inaccuracies in the reports.  

In summary, these 4 processes are the building blocks of how major apartments and property management firms screen their applicants.  By implementing these processes, you will reap many benefits, including the ability to build wealth faster by utilizing efficient processes that you can systematically deploy across a portfolio.

Stay tuned for the last part of this series, which will help lay the foundation to establish great tenant screening Acceptance Criteria.  

# of Years' Screening Experience We Use as a Base for these Tips

# of Transactions Facilitated (in Millions) and Used as Foundation for Tips

Avoid This Scenario

A well-intended first-time landlord was touring his rental home with an expecting couple.  He started asking about maternity leave, family plans and so forth.  It was uncomfortable and discriminatory (though unintentional), and the couple left disenchanted.

Benefits

Remove Emotion

Facilitates Compliance

Establishes Baseline

“Before I show you the property, how about I share the qualification criteria first.  If we have a fit, we can take it from there…”

Benefits

Compliance

Efficiency

Scalability

Benefits:

Reasonability Test

FTC: What is an Adverse Action?

An adverse action is any action by a landlord that is unfavorable to the interests of the rental applicant.  Common adverse actions include:

  • Denying the application
  • Requiring a co-signer on the lease
  • Requiring a deposit that would not be required for another applicant
  • Requiring a larger deposit than might be required for another applicant
  • Raising the rent to a higher amount than for another applicant

For more information, visit the FTC’s website.


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