One of your primary goals as a rental property owner or manager should include finding the most qualified tenant who will pay rent on time, follow lease terms, and take care of the property. And most importantly – you need to find this qualified tenant through legal avenues.
Awareness of, and compliance with, Fair Housing laws, as well as any local or state regulations, is essential to your success in property management.
The best way to find great tenants and avoid discrimination lawsuits is to create a set of written screening criteria that are objective and legally appropriate. Additionally, you need to apply your screening criteria equally to all applicants.
Written screening criteria sets forth minimum, objective tenant qualifications that will benefit a landlord in two ways:
- It streamlines the screening process. If any applicants do not meet your minimum screening criteria you can reject them before spending time calling references and conducting a background check.
- It reduces the likelihood that a discrimination claim because it takes a landlord’s or property manager’s personal, subjective opinion out of the equation.
You should think of your screening criteria as a checklist that you go through when reviewing each application. By utilizing written screening criteria a landlord is reminded that he is making a decision to rent to an individual based on objective reasons rather than subjective ones.
An objective reason to deny an applicant is something that is quantifiable and verifiable. Subjective reasons cannot be verified and as such can lead to allegations or actual instances of discrimination.
An objective denial would include rejecting an applicant who does not meet minimum income requirements or has been evicted from their last rental. An example of subjective denial would include rejecting an applicant because you got a “bad feeling” or you didn’t connect with your applicant. You should not be making a decision to rent to someone based on a subjective feeling; by doing so you may inadvertently and unconsciously be discriminating against them.
How to create your screening criteria?
An example of very basic screening criteria can include:
- Verifiable income that is at least 3X monthly rent
- Minimum credit score of 600
- Copy of a photo ID
- No prior evictions
While basic screening criteria may work for some, establishing more detailed screening criteria will help you choose between several qualified applicants. You may find that you need to update your screening criteria is you are finding it difficult to find qualified applicants.
Step 1: Consider your primary goal
By understanding your primary goals you begin to build the foundation of your screening criteria.
Your screening criteria should provide you with 2 primary goals:
- Adhere to Fair Housing regulations and protect you from discrimination claims
- Assist you with approving the most qualified tenant for your rental property that:
- Will submit monthly rent payments on time, every time
- Will follow lease terms and property rules
- Will maintain the property and not cause property damage beyond normal wear and tear
Step 2: Consider which factors will help you meet your goals
Goal #1: Comply with Fair Housing Regulations
The Fair Housing Act sets specific rules about providing equal opportunity housing to all rental applicants and expressly forbids discrimination based on a protected class, like race, gender, familial status, sexual orientation. (Learn more here).
Based on those standards, landlords and property managers are legally allowed to require an applicant to provide proof of identity, verify employment and income, and review an applicant’s rental history, credit history, and criminal background in order to find the most qualified tenant.
As long as you create standard screening criteria based on the information above, and apply the same criteria to every applicant, you should find yourself in compliance with Fair Housing laws.
Goal #2: Find the most qualified tenant
During the draft stage of creating your screening criteria, make a list of all the legal ways you can find out if a tenant will be qualified and help you meet your objective.
Let’s revisit your great tenant qualifications:
1. Will submit rent payments on time, every time.
In order to determine if an applicant will make regular rent payments, you should verify income and employment, review a credit report and call previous landlords.
Objective ways to determine if an applicant will make regular rent payments on time:
- Applicant has a monthly income that is 3x the monthly rent.
- Applicant will not be burdened with rent payments as seen by his monthly debt to income ratio
- Applicant has demonstrated financial responsibility as seen on a credit report
- Applicant has a history of paying rent on time
- Applicant does not have a history of evictions due to non-payment of rent
- Applicant has not been taken to collections for non-payment of rent
- Applicant does not have any outstanding debts or collections
- Applicant has stable, verifiable employment
- Applicant has a positive rental history
2. Will follow lease terms and property rules.
To evaluate an applicant’s tendency to follow rules rule abiding behavior, you should consider criminal history, public records, landlord references, and credit report.
Objective ways to determine if an applicant will follow lease terms and property rules:
- Applicant does not have any criminal convictions for crimes considered harmful to people or property
- Applicant does not have a history of noise complaints
- Applicant does not have a history of lease violations
- Applicant does not have a history of evictions due to lease violations
- Applicant’s rental references would rent to him again
- Applicant does not falsify any application information
- Applicant has demonstrated responsibility by paying bills on time.
As you can see there is some overlap between screening criteria and the how they can help meet your goals, for example a credit report will show your tenant’s ability to pay rent and gives insight to how they handle contract rules in regards to paying bills on time.
3. Will maintain the property and not cause property damage beyond normal wear and tear.
Typically the best way to determine if an applicant will take care of the rental property is to check with their previous landlords or property managers.
- Objective ways to determine if an applicant will Take care of the rental property include:
- The applicant was refunded the full security deposit
- The applicant reported maintenance issues immediately
- Applicant did not cause damage in excess of the security deposit
Step 5: Put it all together
- Establish your criteria before you begin accepting rental applications.
- Have your criteria reviewed by an attorney who is familiar with landlord-tenant laws in your area, ensuring they comply with local, state and federal regulations. your city, state and federal government.
- Apply your screening criteria evenly and consistently to everyone.
- Stick to your screening criteria, do not make exceptions.
- Screening criteria does not have to be distributed to everyone. Some landlords choose to give their criteria to potential renters as a form of self-screening with the intent that potential applicants will read the criteria and not submit an application if they do not meet the criteria – saving the landlord time and energy. Other landlords choose not to give out their screening criteria but use it internally to assist with the screening process.
- Use clear and plain language. Confusing jargon or legal terms helps no one. Instead, state criteria in plain language so that both the applicant and the person doing the screening can understand exactly what information is required and what benchmarks must be met in order for an application to be approved.
- A common complaint from landlords who start using screening criteria is that they feel bound or restrained by the criteria. Screening criteria is supposed to restrain you from making random, spur of the moment, subjective decisions.
Whatever your qualifications, the most important aspect is creating a standard and applying this to all applicants. Without tenant screening criteria, a fight over the rejection of a rental application may boil down to “he said – she said” or baseless claims that you harbor discriminatory opinions. Avoid this unnecessary fight by creating clear, written screening requirements and sticking to them – every time.