Streamline Your Selection Process with a Tenant Scoring System

By
Real Estate Technology with Innago

There’s plenty of fish in the sea. It’s a familiar phrase that most employ when discussing matters of the heart. But the same can be said for landlords looking for that perfect tenant. However, what happens when plenty turns to too many?

It’s a good problem to have – being inundated with just too many great potential tenants. However, the luxury of having a wide range of options doesn’t necessarily make the decision-making process any easier. In fact, it becomes much more challenging.

This is why savvy landlords have come up with systems to help them analyze applications, categorize information, and make a more informed and defensible choice when determining their next renter. Not only doesn’t the employment of a tenant scoring system aide and expedite your process, but it also serves in protecting you from potential lawsuits. Use of a clearly defined system in your selection will allow you to avoid any potential Fair Housing lawsuits.

But where do you start? Follow our simple four-step guide to create your own scoring system and you’ll be well on your way to selecting the best tenant for your space.

Step 1: Establish Goals

Goal-setting is a well-known strategy for success in any business endeavor, and this one is no different. And while you’re free to go crazy with your own hopes and dreams, for the purposes of this exercise, most property managers will share some version of the two goals listed below.

  1. Protect yourself from discrimination lawsuits by complying with all Fair Housing-related rules and regulations.
  1. Select the tenant that is the best fit for your property.

In terms of objective number 2, you’ll also want to be clear about precisely what that tenant figuratively looks like. Here are a few potential distinguishing characteristics.

  • Abides by all terms of the lease agreement
  • Pays rent consistently and in a timely manner
  • Respects the property and surrounding tenants or neighbors

Step 2: Consider the Factors that Will Affect your Goals

As a business owner, it is your job to set yourself up for success in any way possible. You are responsible for making smart and informed decisions when it comes to the management of your properties. Now that you’ve laid out your goals, you will want to consider what factors might come into play that will enable or obstruct the achievement of those goals.

In other words, there are key indicators about each tenant that you can legally pull from their applications and analyze to determine whether or not they are a good fit. This part of the process is about determining which factors you will be looking at.

Goal #1: Protect yourself from discrimination lawsuits by complying with Fair Housing regulations.

According to the Fair Housing Act of 1968, it is illegal to discriminate in the sale or rental of housing, including discrimination on the basis of race, color, national origin, religion, sex, familial status, and disability.

In establishing a tenant scoring system that uses a pre-determined set of criteria, you can prove in a court of law that factors like race, sex, or disability status are not part of the decision-making process and did not influence the outcome.

On the other hand, in terms of the law, you are fully within your rights to require applicants to provide proof of identity, employment, and income. You can also review an applicant’s criminal history, credit report, and rental history via a background check. Some platforms, like Innago, have this feature built neatly into their software, making it must less intrusive or uncomfortable for both parties.

Goal #2: Select the tenant that is the best fit for your property.

When you’re thinking about these distinguishing characteristics that you think best describe the ideal tenant for your space, you’ll want to figure how you can, legally, determine them. Based on our sample characteristics provided above, here are some ways you can go about doing so.

Characteristic #1: Abides by all terms of lease agreement

When determining whether or not a potential tenant will follow his or her lease to the letter, there are a few weapons in your arsenal. These resources include their credit report, public records, references from past landlords, and their criminal history.

Also, important questions to consider...

  • Does the applicant have a history of evictions and or lease violations?
  • Has the applicant ever received a noise complaint?
  • Would an applicant’s past landlord recommend him or her as a tenant?
  • Does the applicant demonstrate responsibility by paying bills on time?
  • Has the applicant committed a crime or crimes that would be considered harmful to people or property?

Characteristic #2: Pays rent consistently and in a timely manner

To some landlords, this might be the most important factor, as it is one that some tenants seem to struggle with. And while it is something that can be difficult to predict, there are definitely key indicators that will give a warning flag for repeat offenders. Thoroughly review the applicant’s credit report, income and employment information, and past landlord references.

You may also want to ask yourself...

  • Does the applicant have a monthly income that is 3x the monthly rental amount?
  • Are there any significant outstanding debts in the applicant’s name?
  • Has the tenant been evicted or taken to collections over failure to pay rent?
  • Does the applicant currently have stable and verifiable employment?
  • Does the applicant’s credit report demonstrate financial responsibility?

Characteristic #3: Respects the property and surrounding tenants or neighbors

This one can be a little bit more difficult to verify, but there are still ways to get an indication of a tenant’s future behavior when it comes to respect. One of the most straightforward being to go directly to the source. Consulting with previous landlords will always give you a good idea of what you yourself are in for.

Other questions for consideration...

  • Has the applicant always received his or her full security deposit back?
  • Has damaged caused by the applicant ever exceeded the amount of the security deposit?
  • Have there ever been recorded complaints or disputes between fellow tenants or neighbors that involve the applicant?
  • Has the applicant always reported maintenance issues promptly and thoroughly?

Step 3: Create your Scoring Sheet

Now comes the fun part. You have already done all the heavy lifting of considering your criteria and how to evaluate it from every angle. Now it’s just about organizing said criteria into a tidy checklist.

You can even pull the questions from directly above to fill out the lines of your scoresheet. For every question or consideration bullet, the applicant is awarded one point (or whatever weight you assign to each criterion). Once your checklist is completed and tabulated for each applicant, you’ll know instantly which is the best fit, achieving one of your key goals.

In order to also ensure that goal number one is met, once this scoresheet is rolled out, you’ll want to adhere to it closely. Keep good and secure record of all scoresheets in the event there is a discrimination claim. As long as you stick closely to your own guidelines and reporting, you’ll have no problem remaining compliant with all Fair Housing rules.

Step 4: Legal BONUS Round

As an added precaution, whenever you have any legal concerns or considerations, it’s always best to consult the experts. An attorney will be able to review your scoring system and give you the assurance you need to move forward with its application. They can poke the finer holes into your process and ensure you have an airtight defense in the unlikely event of those worst-case scenarios.

 

Whether your main concern is protection and compliance in the eyes of the law, or simply the expediting of your decision-making process, the creation of a tenant scoring sheet is a great move. You’ll eliminate wasted hours and the guilty conscience of toiling over a large applicant pool. Because while there’s plenty of trustworthy fish in the sea, this simple tool will help to ensure you don’t end up with one big whale of a problem.

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