Tenant screening should be a top priority of every property rental business. By screening tenants, you limit your units to only the most qualified, trustworthy tenants. You also avoid the financial, legal, and social risks of accepting tenants who could be a danger to you or your business.
Tools like property management software can streamline the screening process. However, you are still responsible for making final decisions about tenants.
Mistakes during tenant screening can be costly or damaging. For example, neglecting a component or misusing the information you find could land you with an expensive lawsuit. To avoid legal trouble, dedicate appropriate care to ensuring your screening practices are thoughtful and lawful.
To help you get started, here are five common tenant screening pitfalls and what you can do to avoid them.
Perhaps the most obvious pitfall is skipping components. A basic tenant screening should include a tenant application, credit report, and background checks (criminal and eviction).
If you neglect any of these components, you risk missing the full picture of a tenant. For instance, without a thorough tenant application, you can’t learn about a tenant’s smoking habits or check their references. Skipping a credit report could put you at risk of renting to a financially irresponsible tenant.
On the most extreme end, skipping background checks could land you a major lawsuit. For example, you could be liable for providing housing near a school or park to a registered sex offender.
To avoid these disasters, never skip a step during screening.
According to the Federal Fair Housing Act, it’s unlawful to discriminate against tenants based on seven protected classes: race, color, national origin, religion, sex or gender, familial status, and disability.
Even if you’re familiar with this law, you could unintentionally violate its terms. For instance, the wording of your rental application could be determined discriminatory, especially if you ask questions pertaining to the seven protected classes.
To avoid legal liability, have a lawyer review your tenant application to ensure your screening practices are fair.
Only Using Credit or Resident Score
When you access an applicant’s credit report, you may be tempted to jump immediately to the tenant or resident score. While a useful metric, this three-digit number is not the only component of a credit report.
When reviewing a credit report, consider all five components: basic identifying information, fraud indicators, tradeline summary, inquiries, and the credit/resident scores.
The tradeline summary is especially telling. The tradeline summary lists a renter’s active accounts, including credit cards and debts. Without this information, you could make an income judgment too hastily. A renter who appears to have sufficient income may be unsuited to rent your properties if they have significant debts.
To make the most informed decisions about a tenant’s creditworthiness, weigh income with all parts of the credit report.
Not Setting Standards
This pitfall is another which relates to the Fair Housing Act. Setting standards and minimum requirements for tenants is a must. Without defined procedures for accepting or denying tenants, you risk being unable to justify your decisions should a legal question arise.
Here are a few ideas for standards and minimum requirements. For one, it’s generally advised that a tenant’s income should be at least three times as much as your monthly rent price. You might also designate automatic denials for tenants with evictions or require that tenants meet three years of responsible credit history.
Using Social Media Inappropriately
Finally, inappropriate social media use is another potential pitfall of tenant screening.
Social media is a far-reaching and accessible way to learn about tenants, which makes it attractive to employers and landlords as a screening platform. However, using social media irresponsibly can lead to inconsistencies and unfair practices.
If you decide to use social media, check the same platforms for every tenant. You can’t choose to search social media for one tenant but ignore it for another.
You should also understand the privacy regulations of the social networking platforms you use. Be aware that you can’t require an applicant or tenant to make their profile public or add you as a friend.
Avoid Screening Mistakes to Secure Great Tenants
Tenant screening is an involved process, and for good reason. The risks of accepting unqualified tenants could mean financial, legal, or other consequences. By applying thorough, fair, and consistent screening to your applicants, you are certain to avoid these risks and successfully secure the best tenants.
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