Adverse selection is a “term used in economics, insurance, risk management, and statistics. In a rental housing context it translates into a propensity of people with a history (and therefore greater likelihood) of lease violations to find landlords who fail to adequately vet prospective residents. Professional property managers understand the importance of conducting thorough background checks and know that if they fail to do so, they are likely to pay a price in terms of resident profile, NOI and owner equity. Plus, they have access to quality tenant screening products. Private landlords, however, may lack knowledge of leasing best practices and often lack access to quality tenant screening products. High risk tenants know (or quickly learn) that their odds of being approved for tenancy are better among private landlords. So guess what? If you fail (intentionally or unintentionally) to thoroughly screen prospective residents – the market will reward you with... View Article
Need to Know!
Categories for Tenant Screening
Just say NO… to rental history database searches! The Federal Trade Commission recently warned the operators of six websites that share information about consumers’ rental histories with landlords that they may be subject to the requirements of the Fair Credit Reporting Act (FCRA). The letter clearly states that “…If <these firms> assemble or evaluate information on individuals’ rental histories and provide this information to landlords so that they can screen tenants, <they> are a consumer reporting agency (“CRA”) that is required to comply with the FCRA.” Bottom line… if it looks like a duck, walks like a duck and quacks like a duck, it’s a duck – frantic quacks and wing flapping aside!! It is quite likely then, that these folks will be found to be Consumer Reporting Agencies and that rental history database searches used for tenant screening purposes are Consumer Reports as defined by the Fair Credit Reporting Act. What... View Article
Tenant screening as we know it today is a relatively new practice fueled by strides in the quality and availability of consumer credit and public records information. Comprehensive tenant background checks quickly followed – adding rental references, employment verification, and recommendations. About 10 years ago the market began to embrace the so-called “quick” model – computer generated background checks based on the premise that scored credit combined with an instant public records search is sufficiently predictive to obviate the need for the more thorough (and accurate) but time-consuming comprehensive tenant screening product. Some abandoned the use of rental references altogether. But the landscape is changing yet again, driven largely by the emergence of the “disparate impact legal theory.” Under this theory (for which there is substantial and growing precedent), “facially neutral” business practices have been shown (statistically) to disproportionately impact protected groups on the basis of discrimination claims. One example... View Article
Experienced rental property owners and managers understand the importance of rental criteria – developing and consistently applying that criteria as part of the tenant screening process. They know that doing so protects their investment by: Reducing the risk of credit loss (bad debt) Reducing the likelihood of damage to the property Protecting and retaining good residents. At the same time, the prospect of developing criteria from scratch might seem a bit overwhelming. Well, it doesn’t have to be! The process goes like this: Select areas of consideration – those things you wish to consider as part of your tenant screening process. a. Credit history b. Rental history c. Employment d. Income e. Public records (criminal & eviction history) Decide what will result in “denial of tenancy”. Establish thresholds for unconditional “approval” – applies when the applicant meets or exceeds thresholds in all areas. Decide which forms of conditional approval you... View Article
There is a great deal of discussion in the rental housing industry regarding the pros and cons of “portable” tenant screening reports – a single tenant credit check, for example, made available to multiple prospective landlords. Tenant advocates like the idea and have long sought a portability mandate – legislation to require landlords to accept such reports. The appeal (to advocates) is that low income and other hard to place applicants often pay multiple tenant screening fees before finding a landlord who will accept them – a hardship they can ill-afford. A portability mandate, in theory at least, solves this problem by making it possible for applicants to pay for a single tenant screening report and use it with multiple landlords. But there are problems with this approach. First of all, landlords, as a group, are strongly opposed to a portability mandate – even those willing to accept such reports! ... View Article
Verifying rental history is an essential part of the tenant screening process. Rental verifications compliment credit and public records searches or background checks, by: Detecting eviction activity that may not yet have found its way into public records data or onto the credit report (as a civil judgment). Revealing violations of landlord rules and regulations that may not have risen to the level of an eviction but are nevertheless important to you. Providing you with a more complete view of the kind of resident the applicant has been and is likely to be. Logically, recent problems are most likely to go undetected in the landlord screening. Done correctly, rental verifications will reduce or eliminate the exposure. Rental verifications should: Be done consistently. Include pursuit of undisclosed addresses found on credit reports – to determine whether they are apartment communities. Search engines such as Google are useful for this purpose. Consider... View Article