Questions from Property Managers – Part 2

Share
Thoughts on Tenant Selection

Last week, my blog addressed a few of the more common questions raised by Nevada Property Managers. This week, I’ll address a couple of questions received from a California landlord, as they pertain to managing residential rental property throughout the USA.

 

Screening Tenants

I am a landlord renting out a single detached home in California. I have received 5 applications to rent in the last couple of weeks, and I have two questions about the rental process. 

 

First, since I am charging a credit check/screening fee for each applicant,  I’m sure that the ones I deny will ask for a reason why I denied them. If all the applicants’ credit and background reports are similar, and my reason for choosing my tenant is based on intuitive feelings (i.e., I believe this family will take the best care of my property), what reasons can I give for turning down the other applicants?

 

Secondly, if I have applicants willing to pay a higher rent for the property than what I’m asking, can I “auction off” the rental, asking each applicant to make his or her best offer?

 

The Tenant Selection Process

These are questions I often hear, in various forms, both in my classes and via email. My response:

These questions bring up several issues around fair housing law and practice. Although I am not an attorney, I’m happy to share my experiences as a property manager. It is my policy to always evaluate rental applications based on objective criteria. Factors such as credit, income, rental history, job stability, debt-to-income ratio, etc. are all measurable factors that can be objectively evaluated.

 

Having been a property manager for many years, I have learned NOT to trust my intuition when it comes to selecting tenants. Although I consider myself a pretty good judge of character, a rental decision based on “gut feeling” is pretty tough to justify, should it be necessary to do so.

 

Fair housing laws make it unwise to base tenant selection on intuitive factors. The days of blatant discrimination are pretty much behind us in this country. What we see now is what I’d term “friendly discrimination.” A smile, a handshake, and a referral to some other property can be perceived as a refusal to rent based on the applicant’s protected class under fair housing law.

 

As nice as you might be to me when I apply to rent your property, if I believe you’ve declined my application because, for example, I have “too many” children, I have standing to file a fair housing claim. Should I file a claim against you, you will need to be able to show the HUD investigator that you are both objective and consistent in your tenant selection process, and that your selection criteria does not discriminate based on any protected class(es). If your tenant selection process is subjective in nature, it may be difficult to defend such a claim.

 

As to “auctioning off” a rental property, I can’t speak to any state or local law prohibiting such a practice, but I think it’s a very unusual situation. Before placing any property on the rental market, it’s a good idea to conduct a rental survey of comparable properties to determine a marketable rent for your property. If the property is priced right and is in good condition, it should rent quickly to a qualified applicant. A well-priced property is unlikely to generate a bidding war.

 

One more thing…

After responding to this question yesterday, one additional piece of advice came to mind. It’s a practice I’ve employed for many years. When marketing a home for rent, I always process rental applications on a first-come, first-served basis. Using only objective (measurable) criteria, it is easy to determine whether a prospect qualifies to rent the property. They either meet my objective qualifying standards, or they don’t. If they do meet the standards, they’re accepted as a tenant. If not, they’re declined. It’s just that simple.

 

My screening method does a couple of things, in terms of protecting my clients and myself. First, it provides consistency. All applicants are screened in the same way, and in the order in which I receive their applications. Secondly, it goes a long way toward avoiding the appearance of illegal discrimination – rental applicants aren’t compared against one another; they’re evaluated independently.

 

Do you have a tenant screening system in place?

If you have a tenant selection method that works well for you, and you’d like to share it with the readers of this blog, please do so by leaving a comment! Thanks for reading.

Share

2 Replies to “Questions from Property Managers – Part 2”

  1. We use a spreadsheet which assigns “points’ to various factors such as “rent to Income ratio,” “number of late pays,” “been sent to collections for utilities,” “credit score,” and several other objective, “yes/no” or “numerical” items. We score each tenant on this sheet, and if they score above a certain number, they are in; if they score in the next range, they pay additional deposit; and they score in the bottom range; we deny the application. Sob stories, “special circumstances,” “emergencies,” and the like are never factored in. Everyone gets scored in a similar fashion and the scoring sheet gets put int he file, so we can show we treat everyone the same when it comes to processing an application.

  2. Excellent, Robert! In my view, your tenant screening methodology is above reproach, as it is very objective. Thank you for sharing this!

Comments are closed.