An Overview of Tenant Screening
Article by: Al Matson
The History of Tenant Screening
Tenant screening as an industry began in 1969 when Paul and LaRue Mikkelson of Rental Research Services, Inc. saw the lack of information available for property managers. The big question was, "Why isn't there a way to tell if someone has been a bad tenant?" While credit bureaus did exist, they didn"t tell you if someone was a bad tenant, or even if a person had been evicted from a property before. Finding criminal information was a very lengthy process for property managers, and most simply didn?t even try to obtain the information due to the effort that was needed. The Mikkelson?s saw the need and knew the solution, and so formed the nation?s original tenant screening agency.
The immediate solution was not only to develop a report based on court eviction records, criminal records and credit files, but also to develop a database of "problem renters". The reports on the problem renters would come from all of the property managers in the system. Since 9 out of 10 problem renters never make it to the eviction stage (so no court record of a problem), this information was absolutely necessary in order to screen out bad tenants. This information sharing network now has information collected over 36 years.
Of course, it is necessary to know if a person has a criminal history before accepting them as a tenant. Before computers were widely available, this meant sending an investigator to the state or county agency to request information. While time consuming and costly, it did provide the information. Now that computers are so advanced, it is possible to acquire this information much faster, and there is far less cost involved.
Today, there are many companies in the tenant screening industry. Directly comparing their products is relatively difficult, due to the fact that the information they give you has varying levels of depth. However, just as with most things in life, you get what you pay for. If one product is priced well below another, you should be asking very pointed questions of the vendor as to the source and depth of their data. If you save a dollar or two and miss the fact that your applicant is a sex offender, just imagine the costs associated in ridding yourself of that problem!
Reasons to Screen
The price you pay for not conducting thorough tenant screening is very significant. When drug dealers or other types of destructive tenants operate out of your property, your property value declines. Let?s face it - who wants to move into a property that criminals operate out of? The entire neighborhood suffers from this lessening in property value.
Property damage usually occurs with the bad tenant, either from abuse, retaliation or neglect. The cost to rid yourself of this tenant can be added to the cost of repairs. Don?t forget to add the cost of not being able to rent the property again until repairs are completed.
When the bad element enters your property, you can bet that the good element will leave your property. That great tenant that takes care of the property and always pays on time just doesn?t see why you don?t value his business, as demonstrated when you let a criminal move in next door. On top of this, when the bad element makes it through your screening efforts (You do make the effort, don?t you?) he usually tells his friends how easy it is to move into your property.
The eviction process is a very expensive one. Not only do you have both the fees for the legal process and all of your time spent working on the effort, but you also have to take into consideration the fact that you won?t be able to rent that unit for 90 days or more. Put simply, it?s a lot easier to keep them out than to get them out!
What is arguably the largest property management firm on planet Earth requires that housing applicants be screened. The U.S. Department of Housing and Urban Development (HUD) oversees all public housing in the nation. In their guide (Public Housing Occupancy Guidebook) to the people that manage this enormous pool of housing they say "Mistakes in admission can be costly to Public Housing Authorities in practical terms?If families with serious lease compliance or criminal problems are admitted, their behavior is likely to consume the limited time and resources of property management staff and drive out the best residents." With the level of expertise represented at HUD that is a pretty strong statement and a good reason to make sure your screening efforts are thorough.
Data Required for a Complete Picture
In order to see the complete picture on your applicant you will need information from a variety of sources. This makes it harder for a deceptive applicant to hide important information. You want to make certain that you?re getting a thorough check in three main categories:
1. Housing Information
2. Criminal Information
3. Credit Information.
First of all, you want to see if the applicant has ever been evicted from a property before. If the applicant has been evicted in the past, you should be asking why this occurred. Sometimes it could be due to medical problems, and their inability to pay at that time. Multiple evictions are a bit harder to explain. Information on evictions comes from state court records. A tenant screening information provider should have information from states around the nation, or you may not find out what you need to know.
Since 9 out of 10 problem renters never make it to eviction court, you won?t be seeing the whole picture unless you have a source of information that has problem renter reports. A problem renter report is something gathered from members of each tenant screening agency?s client base. Since this data is collected by the tenant screening agency themselves, the length of time they have been in business is a good measure of how deep this information will be. Many vendors don?t have this feature available at all, so you miss out on a wealth of data if you choose them simply due to price. Again, you get what you pay for.
Criminal records are an absolute must in order to keep the bad element out of your property. If your applicant has moved between states, make certain your source has multiple state information on file. If your applicant previously resided in Texas and Florida, will you be able to see any criminal history for these states?
Sex offenders are individuals that you cannot afford to have move in to your property, especially if you have children in your units. According to an ABC News article by Dean Schaber, one out of four sexual offenders does not register with authorities when they change locations. They prefer to remain anonymous. That will not protect your tenants. You could just check your state?s list of offenders, but how do you find an offender from other states? Make certain your tenant screening method provides for multi-state scans for sex offenders. Do you receive color mug shots for verified sexual offenders?
National credit information is very important to gauge a person?s financial responsibility. Have their accounts been paid and kept up-to-date? Have they incurred too much debt for them to be even able to afford your apartment? The credit file also provides a valuable cross-reference for current and previous addresses that the applicant may or may not have entered on the rental application. If an address appears on the credit file that wasn?t listed by the applicant, you may need to look harder at that person?s history. With the credit file comes a feature called SafeScan. This looks at the Social Security number entered, and reports the state it was issued in, the year it was issued and also gives warnings if fraud is possible.
Many public housing authorities believe that they have no reason to look at credit information, but HUD does recommend it. In the Public Housing Occupancy Guidebook it specifically recommends viewing a person?s credit file for housing related financial performance. Again, the credit file is the only source of prior addresses, so to see if your applicant is being truthful in reporting prior states of residence you need to have credit file data in your screening report.
Report Application and Delivery Methods
Application and delivery methods vary in the tenant screening industry. Originally you needed to mail the applicant?s forms to the screening agency, but now that is performed electronically in most cases. While many services still use fax machines, these are being replaced by applications entered on the Internet. Both the ease of use and report delivery speed has significantly improved.
If you are using a fax machine for application and receipt of reports, you will probably need to make some phone calls to follow up occasionally. This is when either the phone number is constantly busy, or the machine jammed or ran out of paper. While they were a great step ahead from the old means of mailing reports, using the Internet is far more efficient and cost effective.
Internet-based reports are usually available in a matter of 30 seconds or less, versus several hours or days for the faxed variety. Some vendors retain these reports online for you, so you don?t even need to print them out. This means less time spent sorting and filing reports, and more time available for other important tasks.
Cost of Reports vs. Information Received
Have you heard about the shoe sale? Yes, it was wonderful; you could by any shoe in the store for just $1.00. Such a deal! Of course if you wanted both shoes the price was a bit higher.
These types of "deals" are available in any business, including the tenant screening business. Will your vendor give you eviction information? If they have a problem renter database, how many files are in it and when was it started? You need to ask your vendor how many criminal records they have in their database. How is sexual predator data presented to you? How many states do they gather their information from, and do you have to pay extra if more than one state is included?
If a tenant screening company can?t answer these questions, then you may be buying just one shoe! It doesn?t make sense to pay any money to a screening company that doesn?t have the depth of data to discover the problem before a person moves into your property.
In Summary
As a property manager it is important to save money and run your business both efficiently and economically. When it comes to tenant screening fees, virtually every market rate property manager passes this cost on to the applicant as an application fee - so it isn?t even their expense! On the other hand, the expense for not screening well can be enormous, and is fully absorbed by the property manager:
Problem Tenant Costs:
Decline in property value
Repairs to damaged property
Possible seizure of drug related property
Loss of good tenants
Court costs for evictions
Loss of rental income during eviction process
Add your frustration and sleepless nights to this list and it becomes abundantly clear that it pays to screen as thoroughly as possible. Since the cost can be passed on to the applicant as an application fee, there really is no reason not to.
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