Why is tenant screening a part of the tenancy application, what is included and why would you do that? Are tenants disadvantaged or would you see it as win-win situation for both parties?
Tenant Screening process
Photo ID and Credit Checks
The renting culture has changed during the last decade more than I can make you believe. Imagine when looking for a rental, browsing through the local newspaper, calling up a landlord and receiving the answer “Sure, this is the address, have a look, the key is under the foot mat”. Easy like that – would you believe that story really happened? Actually, yes - that story happened when we were looking for a rental in the 90s.
Looking with the eyes of renters, the diversity of rental homes has improved and good rentals are available in all price ranges. Legally tenants named on a tenancy agreement are jointly liable for anything like unpaid rent, damage done to the property and by invited guests. The question at the beginning is - how can landlord and renter make sure that the other party meets its obligations? The answer is simple and called “reference check”. That includes for landlords the “tenant screening process”.
Tenant Screening process
Just a decade back you only needed to take your green three-folded driver license (some of you possibly remember, a green piece of paper only with name & registration number) and you could open a bank account with a letter stating your address of residence. No proof of identity—well, that does not work anymore.
Today at minimum you need a photo identification (ID like driver license, passport) and proof of a residential address is required, too.
Letting agents and experienced landlords have implemented a tenant screening process as protection against cheating and fraud. Based on the given information on the application form the assessment has to answer the question whether the applicant is likely able to meet the conditions of the tenancy or not. That decision is mostly supported by references and renting history.
After verifying the given information the application form becomes attached and part of the tenancy agreement.
What does tenant screening include?
· Identity / Photo ID check
· Credit check and payment records
· Reference checks and address verifications
· Renting history and tenancy tribunal records (orders)
· Proof of income and employment
· Reasons for the tenancy application
· Related enquiries like duration of previous tenancies, pet ownership, etc
Identity and credit check
The photo driver license has been widely accepted as proof of identity to match name and identity. People go much too effortless into all sorts of troubles with unpaid bills, fines, civil matters and with bad attitude, people try to hide under false names. Not willing to give up the benefit of living on other people’s expense is the main reason that the screening process is essential.
Credit checks—tell you a lot about spending habits. When tenants are deeply in debts because of hire purchases, credit-card spending, guess who gets paid in the event of shortfall of income? People’s spending habits tell you the likelihood for failing to pay the rent.
The Interview—signing up a new tenancy
There are contrary views about being involved selecting a preferred tenant or leaving it to an agent. Let me remind you that in property investments the line between success or failure is very slim—but the direction you go depends surely on your goals.
For running e.g. a landlord business you would not outsource the most important part of your business activity—finding the right tenant for a specific property. If you look for reasons for that—follow this blog.
Before interviewing prospective tenants, we ask qualifying questions over the phone. That saves time, money for both parties for travelling, and the landlord avoids to be accused of discrimination. Pre-qualifying questions are;
· What are the reasons for applying for your property?
· How many people and pets are included?
· What date ends the current tenancy or time frame for giving notice?
Be wary if people don’t have plans, can move in immediately, offer you cash and so on as they may not be the most responsible persons you would like.
Bond and Rent Negotiation—not an one-way road
A good business is supported by clients who value and appreciate services received. That is in a landlord-tenant relationship not much different.
You would not want to start a tenant relationship where the tenant already owes you money. Never allow a tenant to move in who did not pay you rent and bond in full before getting the keys. Exceptions to this rule come costly.
Bond is a risk management tool, and we as landlords are not necessarily keen to force tenants to put their savings on the tenancies’ bond trust account. If we agree e.g. to lower bonds, tenants sign on the tenancy agreement that the landlord can claim the maximum bond if inspections tell to do so.
The amount of rent should reflect the service provided. In NZ the rent is mostly determined by “Market Rent” - the most confusing part for tenants who signed up for a sub-standard rental and for landlords who provide value for money.
Apart from that “confusion” the rent also includes landlord’s payments on behalf of tenants for council services and water supply and so on. For experienced landlords it pays off choosing the amount of rent depending on the nature of the tenancy.
We look closely at renter’s circumstances, what they want to pay and they receive in return. For short-term tenancies we charge higher rents, for fixed-term tenancies we offer fixed rents, too and tenants who are willing to cooperate to keep the rental in good conditions we respond accordantly.
Are tenants disadvantaged?
Tenant screening has positive effects for both parties as it increases the level of trust. Good renters (we call them the “preferred tenant”) understand the process and take advantage over renter’s competition.
Regardless of whether tenants agree with the application process or not screening is a risk management tool. It reveals whether or not a renter has a consistent lifestyle that fits to the neighbourhood and helps to find a win-win situation for both parties. Good luck.
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Klauster Blogs lead to a real person, IT professional, investor, landlord and business owner with interests in technologies, properties and trading.
His passion, making experiences available and helping people like you, comes from extensive travelling and the principles of life—how to avoid pitfalls in unfamiliar territory when investing or forming relationships.
The philosophy to treat life, partnerships and hobbies as an investment has helped people in his circle. Life is a dream with a deadline, happiness comes from making the right choices and having realistic expectations.
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