The Importance of Tenant Screening for Letting Agents and Landlords

Looking to fill your vacant house or property? Simple, you just need to find a tenant. But wait! Simple isn’t exactly simple. Why? Because any prospective tenant you might come across needs to be ‘filtered’ – and there is a process to screen a tenant’s background - before you can sign a rental agreement with him/her.

One of the most important processes carried out by landlords whilst identifying the right tenant for his or her house, is the Tenant Screening process.

We shall look at WHY this process is so critical for landlords and Letting Agents.

It’s aimed at mitigating the risks from loss and damage to your property. In addition, your tenant should be acceptable not just to you but also to the neighbourhood / society in which your tenant would be moving into.

Drilling down further, let us list out the possible risks or losses we are talking about here. We need to have answers on the below parameters, with respect to the tenant applicant:

• Identity - Who is your tenant? What is he/she doing for a living and where does he/she work? These are important questions to answer, in knowing who your tenant is. The last thing you would want it is to look to the heavens when confronted with the question, “Whom have you leased your house to?”
• Creditworthiness - Does the applicant have a clean financial track record? Has he, in the past, failed to honour any previous agreements? Answers to this will give you good feeler on whether your tenant will be in a position to uphold the rental agreement you signed with him and pay the rent on time. You wouldn’t want to rent your premises to someone who does not have a steady income OR someone who is on the verge of going bankrupt. Nor would you want to proceed letting your house to a known defaulter
• County Court Judgements - Landlords would obviously want to stay clear of individuals who in the past, have been booked for any frauds or other misdemeanors. This factor is critical not just for the Landlord, but also for those living in the neighbourhood of the property to be leased. Nobody would feel safe having a neighbour with a murky past.
• Previous Landlord Reference - Landlords wouldn’t entertain applicants carrying black marks with respect to tenancy issues. They would want to check if the applicant ever had any issues with previous landlords, if/she has ever been served any eviction notices in the past etc.
• Employer Tenant Reference- Landlords would like to entertain applications from folks who remain in the healthy employment bracket viz. with respect to their employment and earnings. So a positive feedback from the applicant’s employer is important.

Now, answers to all the above can be achieved using Tenant Screening software. At Lets Safe we have an online tool that provides answers on the above mentioned points.

So basically, it all comes down to what your Tenant Screening software has to say about the applicant you are interested in. If the final report produced by the tool gives an ALL GREEN, on all the above parameters, then the Landlord or Letting Agent may safely firm-up on the tenant and proceed with rest of the formalities.

Can Tenant Referencing Services be Fully Automated?

We know how critical the tenant referencing process is in identifying a potential tenant. We saw that in the earlier Blog “Importance of Tenant Referencing for Letting Agents and Landlords.”

Now, the question that comes to mind is whether this process can be automated. The simple Answer is YES! Let us see how.

Thanks to rapid advancements made in the field of technology, tenant referencing these days can easily be achieved with the help of software tools. Many of them are available online, and the basic concept followed by each of the tools is to provide a common space for entities involved in this process. Using a collective tool, letting agents, landlords, and tenants can complete the referencing process quickly and efficiently. With better software tools; the easier it is to accomplish a reference in a smooth fashion.

So let us see how these tools work!

ACHIEVING TENANT REFERENCING USING ONLINE TOOLS:

• Landlord / Agent registers online with the software, by filling out their details and supplying essential details of the prospective client (i.e. the “Applicant”).
• The Applicant receives an email to start the referencing process.
• The Applicant completes additional details regarding his/her employment and past tenancy details, if any. Then on clicking “Submit,” an email is automatically generated by the system and sent to the Applicant’s employer and previous landlord.
• Simultaneously, a County Judgment Check is automatically initiated by the software to check the applicant’s credit history.
• On receiving the email, the applicant’s employer and previous landlord fill out a web form made up of a “Yes/No” questionnaire.
• After they finish submitting the details, the software establishes the “risk” of the applicant, by analyzing his Identity, creditworthiness and referencing results.                                                                                             

ADVANTAGES OF AUTOMATION:

•  Each and every step listed above is recorded by the online software.
• The complete process – from registration to tenancy application to background checks and the “Final Report” – is available in ONE SINGLE PLACE i.e. in the online platform.
• Another point of interest is that these online tools are not platform dependent - they can be accessed on any computing device with an internet connection, e.g., desktops, laptops, mobile phones or tablets.
• Tracking the process can be done anywhere at any time.
• Though every tenant referencing software is built to achieve the same objective, it is to be noted that the software can be fully customized to suit the specific needs of Tenancy Screening companies.

So, one can clearly see the benefits that automation has brought to the tenant referencing process. This is precisely why automation has become a must have for letting agents and landlords.

What is Tenant Screening?

Tenant screening is a process of getting relevant information that helps you make a sound decision on a prospective applicant's suitability. With an increase in the number of people who are looking to rent, people are now applying for properties that are usually at the top of their budget; therefore, referencing applicants is the only way to have the peace of mind that those people can afford your property.

The Cost of Getting Rid of a Problem applicant

Considering the current buy-to-let boom, many landlords are now interested in taking advantage of this investment opportunity. However, it's found in a research study that thousands of landlords are facing a loss of at least £1,500 as unexpected costs.

In this new research, which was conducted by an estate agency, it's revealed that landlords have to pay somewhere around £2.1 billion in property vacancies, arrears, and maintenance charges, each year. There is also an increase in the number of applicants who don't pay rent on time, which proves financially crippling for novice landlords. In fact, research found that 9.1% of all applicants paid their rent after the due date, or didn't pay at all. Moreover, 25,422 applicants were served with an eviction notice in the 2nd quarter of 2012, which shows an 8% increase on the year before.

These figures make it clear that though the buy-to-let market is quite lucrative, it may leave you in a tight spot if you don't take special care when signing a contract with a applicant. The cost of getting rid of a problem applicant can be in thousands - in County Durham, for example, you're required to pay £150 just to take a applicant to court (cost of using a bailiff is £90 and the cost of hiring a solicitor starts at £1,250).

That's exactly when tenant screening can save you from running into this trouble. By delving deeper into the details, you will realise that tenant screening is one of the most important and useful tools in your property-letting bag. It tells you that your applicant is trustworthy, doesn't have a dubious rental history, and earns enough to pay the rent on time.

Using a Tenant Screening Service Provider

When you make use of a tenant screening service, you don't have to worry about wasting your time to gather facts about your prospective applicant. These service providers will conduct comprehensive referencing and provide you with details about a number of aspects.

Credit Checks – They will tell you more about your applicant's credit history. It will also include adverse credit info, including CCJs, etc. You may also be informed if your prospective applicant is registered on the voters roll or not.

Affordability Check -- They find out more about your applicant's salary and compare it with the rent, to see if they are financially sound to pay the rent. A good applicant will have his salary at least 2.5 times greater than their share of rent.

Previous Landlord Reference -- They get this information to ensure that your prospective applicant enjoys a good rental history. The report will tell you if the applicant was able to pay their rent in full, and if they managed to keep the property in good condition.

Employer Written Reference -- They also get in touch with your prospective applicant's employer and check if the applicant is a member of staff and their salary is exactly what they have stated. The report will also show if the applicant's job is permanent and if there are any chances of redundancy.

It's important to understand that tenant screening will help only if the service provider is ready to go the distance to conduct detailed checks. Most of these service providers charge you for providing you with basic referencing checks, which only involves verifying the basic info about the applicant – this doesn't include credit referencing. It was found from research conducted by an insurance company that in the first half of 2012, 23% of self-employed applicants failed to provide acceptable proof of income or tax returns, and 51 of these applicants had offered false employment details.

It means that only detailed referencing checks can put you in a position to make an informed decision. If you choose an experienced company, you will get a full applicant as well as guarantor reference report in 48 hours or so. This report will address all the major checks, share the referee response, and assist you in making a correct decision on all prospective applicants.

Conclusion

The crux of the matter is that even though it's a good idea to ask for tenant screening, only you will make the final decision. The thing is that sometimes referencing may find certain small problems regarding your applicants, but you may feel you can overlook those issues. For example, it's not a good idea to accept someone as a applicant if they have a less-than-perfect credit score. However, before you make a decision, you should consider why their score is low – this could be because they haven't been on electoral rolls for their previous addresses. In this situation, you may overlook the issue, but make sure you don't show any leniency if your applicant has CCJs or they haven't shared the whole truth about their financial or employment situation.

What's more, if you receive a referencing report that shares some 'bad' facts about your prospective applicant, you may ask them to provide a guarantor. A guarantor is the person who agrees on paying the rent if the applicant can't. Do keep in mind that a guarantor should also be referenced to prove they are financially stable to afford the rent, if/when required.