More and more recent immigrants, first-time renters, recently widowed or divorced spouses, and others with little or no financial history are seeking housing. And with each skip and bad-debt eviction costing anywhere from $3,500 to $4,500, identifying who's worth the risk and who isn't has serious bottom-line implications.
“The biggest challenge is determining if the risk outweighs the benefit of filling a vacant apartment,” says Linda Richer, director of resident screening for CBC AmRent, a Columbus, Ohio-based provider of nationwide resident screening services. What perplexes property managers, she says, is “not only how to determine the financial risk, but also the behavioral risk that can be even more difficult to predict.”
No leasing agent wants to see empty units, she adds, but “improving occupancy rates can only impact the bottom line positively if the effective rent for the length of residency will be greater than the expenses for that same renter.”
ZEROING IN ON RISK Leasing agents have long relied on a variety of data, such as employment references, income records, pay stubs, previous landlord references, criminal background checks, and personal references.
“These combined sources offer additional means of evaluating risk,” explains Jeanne Delgado, vice president of property management for the National Multi Housing Council in Washington, D.C. “In addition, some of the resident screening companies are beginning to offer enhanced services that include the rental history, another alternative for the applicant who has previous rental history but little traditional financial history.”
Documentation is key to identifying risk, according to MJW Investments, developer and manager of more than 3 million square feet of apartments, shopping centers, and commercial and industrial properties. The Los Angeles- based company insists on record-keeping as a priority for its residential leasing managers.
“The more information you can gather and keep in the file, the better,” says Mark Weinstein, company president. “We collect at least six months of bank statements, at least three months of pay stubs—or if they are not available, a commitment letter from an employer—and try to verify any past rental history,” he says. “Other than that, it is difficult to establish. You can always cover yourself with extra deposits and co-signers so that you can have a point of reference if the person does not pay their rent.”
Some data is available free of charge via the Internet, but finding it can be challenging and time-consuming. “Most ‘public' sources contain limited jurisdiction information,” Richer notes. “For example, a local municipal courthouse might provide criminal records by searching their Web site, but it will only include records on cases handled within that single court. There are over 3,000 counties in the United States, and each county can have multiple courts. The problem a leasing consultant faces with a single-county approach is that the information is so limited it doesn't answer that basic question of, ‘What is my risk?'”
OUTSIDE SERVICES Many property managers turn to national screening companies that provide multiple state and county searches simultaneously for a fixed price. These searches broaden the scope, reduce the risk, and improve cost efficiency.
Additional services include:
- Rental history as provided by multifamily housing managers.
- Sub-prime lending data.
- Criminal records, including judgments for rents, possessions and writs or warrants for eviction.
Web-based services to evaluate, track, and report tenant activity. “The more sophisticated management practices include use of a statistical, applicant scoring model to select the best residents and to minimize losses,” says Nevel DeHart, executive vice president of First Advantage SafeRent. The Rockville, Md., company develops screening and risk management services specifically for the multifamily housing industry.
Pricing for these services varies widely, most frequently depending on the mix of products purchased and the number of apartment units managed.