Determining tenant screening criteria

[.blog-disclaimer-text]Disclaimer: This article is not legal advice. Legal information is not the same as legal advice, where an attorney applies the law to your specific circumstances. Consult an attorney for advice on your interpretation of this information or its accuracy. You may not rely on this article as legal advice, nor as an endorsement of any particular legal understanding.[.blog-disclaimer-text]

One of the steps that many rental agents and property managers find tedious is setting up and recording their tenant screening criteria. Putting in the time to formalize specific measurements for each separate property may feel like overkill. After all, you know how to choose a reliable tenant, right? You always treat everyone the same, right?

The fact is, without well-defined steps in your tenant screening process and without solid, measurable standards for analyzing the information you gather, your tenant screening process is not as effective or as productive as it should be. If you create a sample tenant screening criteria up front, you will be able to eventually land on implementing a consistent, measurable, actionable process for filling vacant rental properties.

What is the purpose of tenant screening criteria?

Think back to a time when you made a small exception for a really nice potential tenant. Maybe your gut instinct told you how good they would be. Maybe they reminded you of an old friend or family member. Maybe you just wanted to help them out.

While your intentions were no doubt good, inconsistencies in your tenant screening process can open you up to charges of discrimination and can throw your screening process into confusion. The more concretely you define your tenant screening criteria and the more consistently you apply it, the more you protect yourself and the property you represent.

In addition, proper tenant screening helps you find a great renter who can:

• Take care of property upkeep as required by the lease.
• Submit monthly rent payments on time.
• Follow property rules and terms of the lease.
• Be a good neighbor and maintain your reputation in the neighborhood or building.

You probably already have in place an informal screening process that has worked for you in the past. The purpose of formalizing your process is to create rental application requirements that you implement consistently with each rental application. That offers protection to you, to your property, and to potential renters.

How can tenant screening criteria protect me?

In our last chapter we talked about the laws surrounding fair housing at the local, state, and federal level. There are a variety of rules and regulations, and the number of protected classes are constantly changing. While this is a good thing for renters, it can open you up to charges of discrimination with even the most well-intentioned screening process.

Should someone report you to your Board of Realtors or mount a discrimination claim against you, how would you defend yourself? You might say any of the following:

• I didn’t understand the rules! (Ignorance of the Law defense)
• I’ve never done anything like that! (Past Reputation defense)
• I would never do that intentionally! (Good Intention defense)

Unfortunately, none of these defenses are sufficient in the face of a discrimination accusation. You will need concrete proof that not only did you not discriminate, but you have a plan in place to actually prevent discrimination.

Clear screening standards customized to each property you represent, manage, or own, shows that you have thought through the qualities you are looking for in an ideal tenant objectively, with no particular person or group in mind.

Furthermore, by showing how you have used this data consistently in the past, you develop a pattern of behavior that argues on your behalf. Consistent, objective measurements, therefore, become your best defense against a charge of one-time discrimination.

How do I record tenant screening criteria?

The US Housing and Urban Development website shows you how to organize and record your tenant screening criteria in a variety of ways:

• Create a worksheet or checklist with each screening element and specific information about acceptable and unacceptable responses and measurements.
• Create a spreadsheet with categories for the various elements and formulas to help you evaluate the information you gather.
• Access one of the many templates available online and customize it to fit your particular properties.

You’ll want your criteria to be specific for each property you represent. That’s because different properties require different rental rates which may, in turn, have different financial requirements. Those financial requirements can mean different guidelines for employment history, rental history, and credit information.

Think through the specifics of each property and how your criteria might change from one to the next. You may even want to consider current and past renters and determine whether you can show that they meet a specific standard as well.

Most of all, when deciding how to record and track your requirements, be sure to use a format that you will return to time and again and continually update. If you are more comfortable using paper and pen for your record-keeping rather than a spreadsheet or computer program, do so. No system is valuable if you’re not implementing it consistently. Create a system that works for the way you work.

Federal law sets out a number of guidelines meant to prevent discrimination against people based on broad demographic or physical factors. Protected classes under the federal fair housing laws include:

How and where should I share tenant screening criteria?

You are not required to disclose your tenant screening criteria. In fact, you can use it solely as part of your internal process and never share it with potential renters.

Many rental agents and landlords, however, prefer to share their screening measurements up front. This has two distinct advantages.

1. By sharing some or all of your criteria in the MLS listing, property flyer, or other marketing materials, you give potential renters the option of pre-screening themselves and determining whether they can meet your requirements for the rental. This can save you time and money by helping you to avoid applications that are ill-qualified for the property.

2. In addition, you create an objective marker against which potential tenants can measure their eligibility. Transparency is a valuable defense against charges of subjective decision-making or discriminatory practices.

If you decide to share your requirements with potential tenants either within the marketing for the property or during the application process, it is important to be clear and straightforward. Jargon and legal terms can confuse the process and make it appear that you are trying to muddy the waters.

One big advantage of sharing your screening process? It shows that you understand the importance of clear and consistent screening measures and processing -- and shows that you have nothing to hide. As Supreme Court Justice Louis Brandeis once said, “Sunlight is the best disinfectant; electric light the most efficient policeman.”

What elements should be included in my tenant screening criteria?

When you are putting together your plan, make sure that you include the following elements.

1. Property details

Put full property details for each separate property you represent. This should include:

• The full address of the property
• HOA or Condo Association information, including fees
• The landlord or property manager for the specific property
• Smoking rules and regulations
• Animal policy information, including restrictions based on size or breed as well as deposit or pet rental fees (Be sure to differentiate your animal policy for pets from the legal requirements to accommodate service animals.)
• Lease requirements including lawn maintenance and exterior upkeep

By spelling out these details up front, you ensure that everyone is aware of them and, if you include them in your marketing, that each applicant has the same set of rules to go by.

2. Financial criteria

Financial criteria can include a large number of factors, which must be applied to all applicants fairly according to the FCRA. These may include:

• Credit screening
• Prior judgments, including liens, civil lawsuits, foreclosures, and bankruptcies
• Income verification, which may include any of the following:
  - properly documented self-employment income
  - alimony and child support
  - Annuities and pension distributions
  - court ordered awards
  - interest and dividend income
  - other alternative forms of income besides salary and bonus payments.
• Fixed amounts for deposits and fees

3. Public records

Public records generally apply to background checks focused on criminal history. Keep the following rules in mind when evaluating criminal background:

• Generally, you are only allowed to use criminal history as a deciding factor in the event of a conviction, not an arrest.
• Take into account the date of the conviction as well as the seriousness of the offense.
• Many jurisdictions no longer allow a rental representative to reject a potential renter based solely on criminal history. You must consider whether the tenant’s criminal history would put other residents in danger and whether or not the applicant would be able to pay rent.

4. Rental history

It is a good idea to reach out to the potential tenant’s prior landlord in order to find out whether or not they have any of the following in their history:

• A history of late rent payments
• Complaints brought by other tenants
• A history of breaking the terms of the lease agreement
• Damages deducted from their security deposit.

A good report from the previous landlord can help to offset some negative elements of a renter’s application, like a less-than-ideal credit record or a non-violent criminal history. However, it is important that you set out the specific standards and use them across the board for all rental applicants.

For example, you could add the following statement to your application or list of requirements: “We require a credit score of 620 or above. However, we will accept a credit score between 560 and 619 if it is accompanied by 24 months of on-time rental payments and a satisfactory reference by your prior landlord.”

5. Employment history

An applicant should be able to show a consistent history of employment, with few if any gaps or incidents of “job-hopping.” You will want to contact the HR department of the applicant’s employer in order to verify dates of employment and salary information.

If the applicant is self-employed, you will want to require different documentation, like the prior year’s tax return and, possibly, several months of bank statements in order to verify income sufficient to pay rent each month. Be sure that you apply the same criteria to all applicants in this situation.

Sometimes you will have applicants who are just out of college and moving to take a new job. In this case, you can require a verification of employment, start date, and projected income from their new employer. In addition, they may have a rental history from an apartment in their college town.

Final Thoughts

You may feel frustrated by such clear-cut requirements. After all, doesn't it keep you from making spur-of-the-moment decisions based on your instinct?

Actually, yes. That's exactly what it is designed to do. While you may not like it, the best thing you can do is add more consistency and objectivity to your tenant screening process. This will lead to better tenants and better decision-making.

As always, protected classes and regulatory requirements can vary from one city or state to another. Be sure to check with your legal representative in order to ensure the appropriateness of your specific rental criteria.

Now that you know which tenant screening criteria you will apply during the application process, it’s time to look at how you will attract new leads and eager applicants.

Continue to Chapter 5: Rental Property Marketing or jump to a different article.

1. Tenant Screening 101
2. Creating Your Tenant Screening Checklist
3. Tenant Screening Laws
4. Determining Tenant Screening Criteria
5. Rental Property Marketing
6. Questions To Ask Rental Applicants
7. Showing the Rental Property to Prospective Tenants
8. What is a rental background check?
9. Top 5 Problems With Tenant Screening Services
10. Onboarding A New Tenant