Guest Column: Resident Screening—Why Bother?
- May 17, 2009
By Linda Richer, Director of Resident Screening, CBC Companies, Inc. With bankruptcies at an all time high, foreclosure activity at record numbers and occupancy rates the lowest in years, finding qualified residents to fill apartment units has become increasingly difficult. Coupled with having to balance the unending responsibilities at your properties, there just doesn’t seem to be enough time or staff to complete all the daily tasks. Fortunately, one process has become more streamlined over the past decade—resident screening.Now, don’t get me wrong; this can still be a very complex and detailed item to prepare in your business plan. But lately, resident screening companies have become more involved in the process. In fact, resident screening might be one of the few expenses your properties incur that can actually produce, save and increase revenue for your company. We’ve all heard the saying, “You have to spend money to make money!”Well, resident screening is certainly one expenditure that sets the tone for the rest of your properties’ successes or failures. Where does the money generated for your properties’ expenses come from? Your residents, of course. And if the residents aren’t paying on time (or at all), what happens? So, the residents’ rental payments are the funding that keeps the property running effectively and generates money to pay the rest of the bills—right? You can see why the quality of residents you select can directly affect your ability to maintain and improve your community’s image.The rental applicationStarting the process of screening your residents properly requires a complete and thorough rental application. This is where valuable information is gathered for the screening and also for the duration of and post lease period. Taking a good application begins the opportunity for your property to produce, save and increase revenue for your company. Practicing these tips will build a solid foundation for the applicant screening process. • Obtain legal ID information and any alias or nick-name (identity fraud can cost a bundle)• Get detailed address information including apartment numbers and multiple previous addresses. Check for concurrent dates and account for a history relative to your rental standards.• Request current pay stubs or a letter of verification from the employer’s HR department to verify the applicant’s current employment.• Verify all information with a picture identification. Confirm name, address, social security number and DOB. This step takes only a few seconds, but can save an enormous amount of time and money down the road.• Require all occupants to be listed on the application (regardless of age)• Obtain at least one emergency contact, preferably family or a very close friend. This will be an important contact in event of a skip or balanced owed at the end of the lease.It is extremely important to add language into your rental application that provides consent from the consumer for you to pull additional reports during and after the lease expires. Without this consent, property managers are not complying with FCRA guidelines if they pull consumer reports for reasons other than the initial resident screening process.The resident screening processHere is where many companies forget the saying, “You get what you pay for.” Because most properties (other than HUD) collect an application fee, your company doesn’t actually have to fund the screening cost. Think of the application fee as an investment toward the potential return from the resident…and it is not even your investment.Standard application fees within the industry range from $20 to $50, and applicants are willing to pay for you to screen them. In fact, thorough screening projects a positive image of your community. Depending on your community standards, at minimum, credit history, rental information, criminal data, and eviction activity should be reviewed. Make sure your rental standards are clear, concise and consistent. Sharing these criteria with your applicants lets them know in advance your standards, and again, conveys the message that your community and company care about the quality of the resident profile living there.In addition, the applicant’s signature or initials on this document will assure that they understand your approval policy. Once your rental standards are in place, a consistent review process is imperative. Utilizing a “decision program” offered by most screening companies can eliminate the bias of human judgmental review. Depending on the flexibility of the decision model, multiple decision messages can be delivered with tiered standards being applied to unique property types —i.e. different approval guidelines for conventional properties versus tax credit or HUD communities. The most sophisticated models can return multiple decisions for usually little or no increase in cost. Screening in this fashion can afford many benefits to your company, including:• Instant “point of sale” approvals• Consistent review and decision making• Compliance with Fair Housing Issues• Decreased staff training• Upper management policy control• Improved resident retentionStreamlining the screening processUsing today’s technology can build further efficiencies into the applicant screening process. Some of the most sophisticated property management software providers and screening companies will partner to afford their mutual clients with the benefit of using one program for multiple purposes.Using a software provider that partners with a quality screening solution will reduce the amount of training for the property staff as well as improve time efficiencies (reduce keystrokes). These benefits fall right to the bottom line. In addition, management control of site level processes can be reviewed from one program.Companies make decisions every day about how to run their businesses. Some decisions are tried and true and others are adopted without much consideration. Consider these practices for producing, saving, and increasing revenue for your company.• Structure leasing commissions so that the focus is on customer service and lease renewals rather than new move-ins.• Promote and reward resident referrals at the middle and end of the referred resident’s lease agreement.• Maintain your rental criteria standards; even in a soft market, studies show that renting to sub-par applicants costs up to three times the amount of an apartment left vacant.• Avoid “giving away the farm” to entice applicants to rent your apartments. This practice typically attracts unqualified renters.• Improve resident retention by offering short-term renewal leases when applicable. This should reduce the likelihood of skips.• Report your resident’s rental history to a secure and compliant database to reward on time payers, deter lease breakers and encourage residents to take their lease agreements seriously.• Only approve borderline applicants with high conditional offers—i.e. increase security deposit and co-signer or one month’s rent as deposit and first month’s rent up front.• If a concession of rent is offered, always pay it at the end of the lease agreement.Now, more than ever, thorough resident screening provides property management firms with a solid foundation of residents from which to generate operating revenue. In a tough economic market and with post 9/11 threats affecting apartment owners, your resident screening practices have more consequences than ever before. The impact of cutting corners during the application process can severely impact your communities’ reputation, bottom line and safety. Resident screening is one expense well worth paying. If you don’t bother to invest in quality resident screening, your residents may adopt the same attitude.Linda Richer is Director of Resident Screening at CBC Companies, Inc.