The downsides of instant tenant background checks
We’ve all heard the horror stories… or fallen victim to them already.
Time and time again, property managers have found themselves in hot water; discovering that a background screening company has carelessly assigned an incorrect identity to our housing applicant when the damage is already done.
As a result, they’ve already been exposed to:
- Tenant fraud.
- Regulatory fines.
- Bad publicity.
It sounds bad enough, right? Sadly, there’s more.
When you rely on poorly-sourced renter background checks to decide whether or not to accept a resident into your multifamily property, it’s not only your livelihood that comes under threat.
You also put your other tenants in an incredibly vulnerable position. After all, if you let someone with a dodgy history share a building with other residents, who knows what might happen?
What is a tenant background check?
A tenant background check is a screening service that explores a prospective tenant’s rental history. This includes verifying their income, past and current employment, and the state of their overall credit score.
With this information, you should be able to accurately determine whether or not to accept an application to one of your properties, deciphering whether or not they have the means (and the motive) to pay rent on time.
It should also give you insight into whether or not they will fulfil the terms of your standard rental agreement (like caring for their apartment), helping you reduce costs and improve your cash flow.
The 4 biggest downsides of automated tenant background checks
At face value, automated tenant background checks should be something worth celebrating.
After all, the real estate market is evolving; and it seems that being efficient as possible with your administration can help your business remain competitive.
However, as it stands, the majority of “fast and cheap” results promised by background screeners across the world utilize name-only matching procedures… which aren’t always accurate.
Over the last few years, multiple property managers are encountering issues because the information they bought reported records that belonged to a different person.
Just think how many people have the last name “Smith” (hint: there’s almost 2.5 million of them).
When you use this type of service, you could end up judging an applicant on a stranger’s background history.
How? Well, renter background checks like these rely on algorithms and computer-based “matching logic” to determine any criminal, eviction, and sex offender records.
This technology is far from perfect.
2. Compliance violations
Inaccurate screening practices pose a compliance risk for multifamily property managers.
Fair Housing laws apply to tenant screening services, and, if it’s deduced that your property is wrongfully denying a prospective renter based on false information (thanks to a dodgy landlord background check), then you could be in violation of the Fair Housing Act.
Wrongfully denied applicants can quickly turn into plaintiffs in lawsuits against landlords and background screening companies. Many of these cases are settled for undisclosed sums, so it’s difficult to calculate the true cost to landlords and background screeners.
Even cases that are settled quickly often result in tens of thousands of dollars in legal fees alone. Those numbers multiply when the lawsuit turns into a class action, which is exactly what happened when William Hall Jr. sued over his inaccurate background check.
3. Competitive edge
Today, as a result of the COVID-19 pandemic, the rental market is incredibly competitive.
With increased reliance on technology and digital services to avoid face-to-face interaction, it’s important to ensure that those technologies deliver the right results. Otherwise, you’re just wasting money.
Today, landlords have an unique opportunity to conduct inclusive, fair, and equitable background checks on tenants that prioritize accuracy over speed to select the right tenants for their community.
Isn’t that worth the extra time it takes to generate a report?
3. Human touch
Property managers are not always experts in background screening.
So, it makes sense that you seek help from a provider. Just make sure it’s one that incorporates human oversight into the screening process and doesn’t just rely on a computer.
Why? Well, it’s simple.
Checking renter backgrounds is a sensitive and personal matter. How you approach them and how you handle the following situation, can prove your worth as a landlord.
At the end of the day, an incorrect screening report not only creates disruption for the applicant, but it also means the apartment landlord could upset their residents.
Don’t take that risk.
How to conduct background checks for rental properties
As a society, we often think instant is better. Instant purchases, instant service, instant results from the web are all logical markers of advancement and improvement in technology and commerce.
Yet, when instant also equates to inaccurate, it’s time to take a step back. The risk of exposure to vast property management fraud isn’t worth the promised benefits that these screening providers promise.
Is it really better to continue damaging the lives of renters and causing landlords to miss out on good tenants? Immediate results aren’t always the right results.
To proceed, look into a variety of sources that can verify an identity and the potential quality of your resident, such as:
- Rental ledgers.
- References from previous agents.
- References from employers
- Tenancy database reports.
- Social media sites.
- Credit reports.
- Blacklist information.
- Landlords in the area.
Go every extra mile, as it will be well worth it in the end when you have satisfied – safe – tenants and a reliable rental income. Plus, running extensive landlord background checks is made easy through MRI Software’s comprehensive and detailed resident screening.
Tenant background checks – FAQs
It seems clear then that, going forward, you should aim to avoid any service provider that offers instant rental background checks. Or, at the very least, approach them with caution and recognise the red flags.
If you still have questions with the whole procedure, maybe these FAQs can help.
Who pays for a background check, tenant or landlord?
The landlord or property manager, as it’s their responsibility to decide whether to accept or reject an application. Plus, if a tenant were to provide their own history, this information could easily be falsified.
How long do tenant background checks take?
The average turnaround from a quality provider like MRI Software would be between 1-3 days, depending on the complexity of your request and the resources they have at their disposal. If there are inconsistencies in the data, or a tenant appears to have malicious intent, this process might take longer.
How far back do tenant background checks go?
Usually around 10 years, looking at previous address history and employment during this time. This can make securing a rental incredibly difficult for young adults, so be cautious of this when managing your properties.
What shows up on a tenant background check?
For the most part, criminal, employment and debt history, a review of someone’s online presence, their credit score, and any reliably sourced references. This gives landlords a clear overview of whether or not to trust a rental application.
Background check tenants through MRI Software
MRI Resident Screening allows multifamily properties to run comprehensive credit and renter background checks with the appropriate efficiency and risk management.
It can also help you tackle your unique property management challenges.
With drill-down reporting capabilities, a team of in-house investigators, and proprietary credit check technology, MRI’s resident screening service offers a configurable approach to reduce the risk for property managers and their communities.
Sares Regis Group protects communities and stakeholders with ID verification
Founded in 1993, Sares Regis Group offers vertically integrated asset management. They draw on over 30 years of real estate experience to build, market, manage, and maintain communities that remain attractive to customers while ensuring top performance for owners. Business Challenge: SRG management were seeing abnormally high rates of bad debt at three properties in … Continued