What is tenant screening?
All the small details like tenant screening matters when it comes to building a successful rental real estate business. Along with finding suitable investment properties in locations that promise steady demand, landlords must also select their prospective tenants carefully through the proper screening process.
This requires the help of a professional real estate agent who knows real estate law and can use the correct criteria to screen potential residents. Today, we’ll discuss the value of professional tenant screening, its benefits, and the risks taken if you decide to use an automated screening method.
It’s Your Best Financial Protection
Screening your renter applications is one of the most critical steps to protect yourself financially. This process ensures that the person who lives in your rental property is financially responsible and able to keep up with payments.
You can also check a potential tenant’s criminal history to see if they would be a risk to your property or surrounding residents. Without doing this check, you can let a resident move in who may be a financial or safety risk, resulting in missed payments and costly property damage.
Proper Screening Prevents Serious Problems – And Fees
When done correctly, the property owner will get a complete picture of the applicant’s fitness as a potential resident. However, such thoroughness is time-consuming. It requires a combination of objective data, from multiple pay stubs, bank statements, a credit check, payment history from previous landlords, references, background checks, and even an interview, to ensure the person is the right fit.
To save time, harried landlords often turn to automated tenant screening services that prompt the resident to submit the information that gets evaluated through a computerized system. Though this option seems convenient, it can leave them open to risks such as:
- Incomplete Information
- Inaccurate Information
- Fraudulent Information
- Improper use of information (such as discrimination)
This leads to finding not-as-good tenants and missing some red flags. Your other option is to get a professional to do the thorough tenant screening without cutting corners so you can relax. They will use the proper verification methods, like a tenant background check, to determine whether an applicant is qualified to keep up with your property.
You Don’t Have to Worry About Real Estate Law
When you hire a real person to professionally check your rental applicants, you don’t have to worry about accidentally judging a person by criteria that get you into trouble through discrimination. Real estate agents know the law and will stick to the legal foundations of tenant screening. Overall, they can minimize your rental risk by judging people by non-discriminatory screening criteria like:
- Proof of Income/ Proof of Employment
- Income Verification
- Debt-to-Income ratio, Bankruptcies
- Credit Score
- Criminal Background Check
- Eviction History
- Rent Payment History
- Rental History reports
- Late Rent Payments
- Personal and Landlord References
Additionally, be prepared for a possible application fee, to be asked for your social security number, a security deposit, and employment verification.
These are objective factors that determine a person’s financial soundness and potential to be a safe resident. It’s vital to adhere to the Fair Housing Act and to avoid judging anyone by protected characteristics. For instance, a novice landlord may have yet to learn that it’s illegal to turn down an applicant because they have a toddler, which can get them into hot water. Landlords must also adhere to state laws when they screen applicants for tenancy. Protected characteristics under fair housing laws include:
- Race
- Color
- National Origin
- Religion
- Sex (including gender identity and sexual orientation)
- Familial Status
- Credit history (in accordance with the Fair Credit Reporting Act, or FCRA.)
- Disability
Violating this act can cost you a lot of money (as well as your good name). According to HUD, the maximum civil penalties are:
- $16,000 for a first violation
- $37,500 for a subsequent breach if a previous one occurred within five years.
- $65,000 if you have two or more violations within a seven-year period.
An Objective, Fair Tenant Screening for Each Applicant
Therefore, a professional screener will stick to the meat and bones of what makes a good resident and ignore the factors that don’t matter, like where they come from. This gives you peace of mind that you’re giving every applicant a fair shot and that you’ll get the most suited tenant for your property.
- Pro Tip: When you list your rental with a real estate agent, you can also be sure that your property is advertised legally. Even the wrong wording can get you into trouble. For instance, “nice neighborhood near good schools” can discriminate against future residents without kids. Check out this list of inclusive property description tips for more insights.
Human-Powered Tenant Screening Weeds Out Inaccuracies
Though obtained faster, results from automated programs don’t go under the same deep scrutiny as under the human eye. Databases from automated programs can produce errors and inaccuracies. If there’s no human to double-check this data, you can end up with inaccurate information. It may also be easier for an applicant to “game the system” with fraudulent information. Incomplete information may also occur. For example, you may get a report of an eviction but without any of the details.
Without human verification, mistakes like a sibling’s criminal record mistakenly attached to a background check can occur. Imagine the missed opportunity on getting an excellent resident due to an error that could be fixed with a simple identity check and virtual interview!
Professional Tenant Screening Services at Marketplace Homes
If your real estate income involves collecting monthly rent, then a sound tenant screening process is your key to protecting your investment. At Marketplace Homes, human-powered resident screening captures the details that algorithms can’t. We are a full-service brokerage and property management company that is ready to help you find the right new tenant for your property through a legal tenant screening report.
Hiring a property manager who can double-check pay stubs, rental history, credit reports, and other information can save you a lot of grief. Checking these qualifications helps see if residents will be able to pay rent in a timely manner. Our pros know real estate law and are experts in maximizing your rental’s earning potential. While a real estate agent can never fully be responsible for legal advice, their knowledge can help you be set on the correct path. Contact us today to find out more about using our many real estate services to your benefit.
