Tenant screening is an extremely important component of rental real estate. Proper screening ensures that a landlord is getting the right type of tenant for their risk tolerance, and mutually beneficial relationships for both parties. Poor screening can result in poor relationships for both landlord and tenants. Below we take a look at what is tenant screening, what to look for when screening, and the different types of screening methods available to landlords.
What is Tenant Screening?
Tenant screening is the act of evaluating prospective rental tenants based on a series of quantitative and qualitative factors. Screening is performed to assess the likelihood of a potential tenant to fulfill the terms of the lease agreement. The screening process culminates in an ultimate “Yes” or “No” decision to fully approve an applicant, approve the applicant conditionally (such as requiring an increased deposit or cosigner), or deny tenancy.
Tenant Screening Services
Tenant Screening services are third-party providers of background data such as screening reports on tenant applicants. Due to the sensitive data they gather, they are classified as a Consumer Reporting Agency (C.R.A.) and regulated by the Fair Credit Reporting Act (FCRA). Landlords and property managers have many choices when it comes to selecting a tenant screening service, so we’ve included a few of the top online tenant screening services.
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Tenant Screening Reports
What are on tenant screening reports? Nowadays, tenant screening reports cover much more than just credit. Below are a list of the most common types of reports that may be included in an overall tenant screening process.
Residential Tenant Screening Process
The residential tenant screening process would be used during the leasing of an apartment or a single family rental (SFR). Residential leases are usually under the name of the individual person and possibly a cosigner if applicable. Creditworthiness will be checked for all people who will be on the lease agreement. The residential tenant screening process normally flows as follows:
- Applicant completes and returns a a completed application form along with any proof of income information such as pay stubs and other relevant information.
- Landlord or Property Manager reviews application, checks credit and verifies provided information such as employment, current landlord references, and personal references.
- Landlord or Property Manager notifies the applicant with either a Yes or No if they will offer the unit.
Commercial Tenant Screening Process
The commercial tenant screening process would be used in the process of leasing commercial spaces such as a retail property, office space, or industrial warehouse. Commercial leases are usually under the name of the business, however, Landlords sometimes may require a personal guarantee if in their opinion, business financials are lacking or the company is relatively new. The commercial tenant screening process is a little different from residential and normally flows as follows:
- Applicant or their representative (i.e. commercial real estate broker) completes and returns completed application, along with any business tax returns, business financial statements, and other relevant company information.
- Landlord or Property Manager reviews and verifies provided information such as current landlord references, business trade lines, and may perform a credit check if personal guaranty is applicable.
- NOTE: In commercial real estate, there may be several rounds of negotiation back-and-forth on various deal points of the lease agreement. Throughout this process, draft lease agreements are marked up and sent back and forth, with requested language modifications from both parties until they both agree upon final language to be in the lease agreement.
- Once both parties agree on all lease language, the final lease agreement is signed .