Screening can feel like a grueling process, especially for rental property owners who work diligently to ensure their home is prepared for new tenants. Many owners fill vacancies by relying largely on instinct in determining which tenants to rent to. PMI Equitas' management team can attest that many an owner regrets such a course of action a year later.
If you have a rental property and are managing it yourself, or are just starting to consider hiring a property management company, this article will go over what Tenant Screening for Rental Property Owners should look like, as well as go over some common mistakes made by rental property owners during the Tenant Screening process. Also, in our experience managing rental properties in the Bothell, WA and Snohomish County area, Washington State law, as well as Seattle law, put unique restrictions on the Tenant Screening process for rental property owners in the area.
The Risks of Wrong Tenants
The average price of the rental properties that we manage at PMI Equitas is $4,210 per month and we typically view a situation where a tenant stops paying at the end of 4 months to be VERY costly. While the loss of 2 months of rent would be $8,420, the owners legal costs would likely exceed $50,000 (after 6-8 months) to evict the tenant and to complete any required cleaning and repairs after the tenant vacates.
Eviction legal fees can range from $3,000 to $5,000 or more in Washington State alone. As an owner, it is best to try and avoid these costs in the first place by having a healthy, productive tenant relationship. However, even a single missed payment could put an owner in financial jeopardy by activating costly eviction processes.
A property owner we spoke with inquired about our tenant screening process. This individual was a property manager for his single rental property and utilized only a credit score in his evaluation process for potential renters. Unfortunately, the property owner reported that the last tenant had stopped paying rent at the beginning of the fourth month of tenancy and that it had taken several months to reach a mutual rescission of the rental agreement. In addition to the lost two months of rent, the property owner indicated that he was going to have to pay for the property to be cleaned and for repairs to be made. We informed the individual that if he had used a quality screening process, the process would have uncovered information that would have denoted a potential problem tenant. Of course, no quality screening process would have guaranteed that the owner found a perfect tenant; however, it certainly would have revealed the red flags for this individual.
Washington State Has Real Legal Requirements for Screening
The state of Washington requires property owners to provide tenants with a document outlining criteria to be used for evaluating applicants prior to charging an application fee. The criteria outlined in this document will relate to criteria regarding the applicant's income, credit score, past rental history, and the applicant's criminal history. The failure to provide a written screening criteria document to applicants can result in serious consequences, rendering the rest of the tenant screening process invalid and creating potential liability for the property owner.
In Seattle there is also the Fair Chance Housing Ordinance. While this doesn't necessarily eliminate the use of criminal background information in screening, it does prohibit using it in a way that would discriminate against applicants. Violations of the Fair Chance Housing Ordinance can result in significant fines – fines up to $55,000 or more per violation. As a result, the use of criminal background information in screening tenants is generally approached with caution, and typically would not be used in a way that would result in blanket disqualification of all applicants with criminal history.
At PMI Equitas we have gone to great length in our compliance of Tenant Screening under Rentvine's Rental Application process. The Application collects all needed criteria, distributes the Screening Criteria document to applicants at the onset of application fees, accurately stores all Applicants data & corresponding Rental Application documents which allow for well documented Tenant selections & provides substantial documentation that will easily address any future disputes.
A Couple Words About Credit Scores!
Here's a take we stand behind pretty firmly. A perfect credit score does not tell you how someone will treat a property. Rental history does.
We've seen owners reject a 640-score applicant with five years of clean rental references and accept a 720-score applicant who had a prior eviction buried in the file. The 720 is the riskier tenant, and that's not even a close call.
In the Bothell and surrounding Snohomish County rental properties, property owners typically require a minimum credit score of 620-680 points. While a perfect credit score doesn't necessarily translate to a perfect renter, a lower credit score can signal to a potential property manager or landlord that the applicant may pose more risk than others with better credit scores. The complete financial analysis takes into consideration other factors including a verification of income, rental references from prior landlords, as well as information regarding an applicant's employment.
Another factor is the income-to-rent ratio, which for financial purposes we calculate by dividing the applicant's monthly verifiable gross income by the rent. Typically, a landlord wants to see an income of at least 2.5 to 3 times the monthly rent. Therefore, for a rental property averaging $4,210 per month, the owner would look for proof of monthly income of $10,525 or more (2.5 x $4,210) or $12,630 or more (3 x $4,210). We have had the experience of working with many applicants who are relocating from out of state, or even from outside the country. In these cases the landlord will typically request an offer letter from the applicant's employer. That letter needs to include the dates of employment, position, annual salary, and percentage of annual salary that will be paid out on a monthly basis. Because some countries do not issue pay stubs or letter from an employer, we also request bank statements and/or letters from the applicant's prior landlord(s) to substantiate their rental income.
The Rental History Question Most Owners Skip
We've talked to a lot of owners who spend 20 minutes reviewing a credit report but never actually call a prior landlord. That's backwards.
Information regarding a tenant's rental history can provide a wealth of information in determining whether they will make good renters. The prior landlord(s) can provide information regarding whether the tenant reported for repairs in a timely manner or whether they allowed minor problems to become cost effective repairs. If the rental unit is a single family home with a yard, then prior landlords can also provide information on whether the tenant maintained the lawn and other yard work in good condition. Finally, prior landlords can inform you as to whether or not the tenant had any unauthorized occupants (including children or pets) at the rental unit during the time that they resided there. Information on a tenant's rental history is extremely valuable in making an informed decision on whether or not to rent a unit to a particular individual. Especially in the rainy climate of the Pacific Northwest, a yard can grow rapidly and cause problems for a new tenant if the previous tenant failed to maintain the yard prior to their departure.
Don't Let Vacancy Pressure Override Good Judgment
There are many properties on the market right now, and many of them have been vacant for a long time. As the weeks draw to a close for the year, owners are very tempted to cut corners with their screening in the hopes of filling up the vacancy as quickly as possible. But the short-term pain of a vacancy in December and January is far less than the long-term financial losses that can occur due to the irresponsible tenants that are allowed into rental properties due to owners cutting corners with their screening.
An owner of a single family residence in Woodinville said she was going to waive verification of an applicant's income because she really liked the applicant. However, prior to signing a lease with the applicant, we confirmed the applicant's employer and income, and in reviewing the applicant's offer letter, we were unable to verify the employer. This applicant would have had thousands of dollars of unpaid rent prior to any legal process before the owner could evict the tenant for non-payment of rent. In the end, the owner would have been better off having the unit vacant until a qualified tenant applied for the residence.
Short term vacancy loss is terrible for a couple of months; long term loss of property due to bad tenant is far worse.
The Pet Policy Conversation Worth Having
A no-pets policy may serve to keep the worst of the worst out; however, it is sure to serve to decrease your qualified applicant pool significantly. Furthermore, a no-pets policy will not eliminate property risk for pets. Animals that their owners hide from landlords are just the tip of the iceberg. Many animals are simply sneaked in by renters who know that their landlord prohibits pets. These are the very animals that will cause the greatest amount of damage to your rental property!
We recommend screening the pet as well as the potential tenant for your rental property. We use a service to go through the pet screening for a fee, usually between $20-$60 per pet for a complete analysis of the pet including type, age, size and up to date veterinary records. Based on this service we can determine the maximum amount of pet rent you should charge as well as the amount of the damage deposit for potential pet damages. Typically, pet damage deposits for rental properties in our area of service for a pet screened through the pet screening service are anywhere from $100-$200. We had a home in the Kenmore WA area where the prior owner did not allow pets and had extensive pet damage due to an undisclosed dog resulting in over $2,800 in damage to the flooring and baseboards in the home. This home could have had all pet damage paid for up front with a pet screened for and approved prior to lease.
Finally we have an owner from near the Bothell–Mill Creek corridor who was thinking of banning pets in hopes of getting a "better" renter. However after going through the process of screening potential renters and their pets we decided it was in her best interest to allow renters with pets. She was leasing the property within two weeks to a quality applicant with one dog that was screened and the renter paid an additional $50. per month in pet rent and a $300. damage deposit for the potential damages that pets can do.
Screening in a Just Cause Eviction State like Washington
RCW 59.18.650 outlines in detail all of the legal reasons that a landlord can use to remove a tenant from a rental property. Essentially the law says that a landlord can not remove a tenant based on whim. He or she can not remove a tenant based on circumstances that would cause no problem for another tenant. Until placement of a tenant, pre-screening of applicants is the greatest tool that an owner has to defend against removal after placement for reasons not outlined in RCW 59.18.650.
To follow the laws and keep oneself from getting into legal trouble, Seattle's First-in-Time law (SFT) needs to be taken into consideration for property owners with property in this area. SFT states that owners with rental property in the city of Seattle must offer tenancy to the first qualified applicant who meets the owner's written criteria. The owner is not allowed to choose between two qualified applicants and follow criteria that are written but not applied consistently. For example, the owner could not choose to rent to his favorite applicant who is a painter because he thinks that painters are more reliable than other types of workers, even though both applicants meet all of the written criteria. In order to remain on the correct side of the law, owners must follow the same criteria for every applicant and make sure that the written criteria is applied consistently to every applicant.
Screening criteria must be applied to every applicant, never exceptions!
How a Good Property Manager Handles Screening for Vacant Properties Differently
Most self-managing owners use their own habit of judgment to screen applicants. Professional property management, on the other hand, uses a documented process to determine an applicant's merits as a tenant. They hold the landlord to the same criteria for every applicant. And as one of our reviewers stated after receiving help renting out his house, "He is professional, responsive, and always willing to help. Renting out our house has been so much easier with David's help and guidance."
FAQ
Minimum credit score to rent in the Bothell/Mill Creek area?
For the Bothell and Snohomish County market our minimum recommended credit score for approving a tenant would be around the 620-680 range. However at PMI Equitas we take a complete look at a potential renters financial history, including their rental payment history and income verification.
Does Washington State require landlords to give written screening criteria to applicants?
Yes. In accordance with RCW 49.60.020(7) all screening criteria must be provided to applicants in writing prior to collection of any application fee. The landlord must clearly outline criteria for income, credit, rental history, as well as any criteria related to criminal history.
Can I reject a rental applicant based on criminal history in Washington?
Note: Where a property is located within the state of Washington can greatly affect whether or not a landlord can use information about a rental applicant's criminal history in their screening process. Currently, the Fair Chance Housing Ordinance in Seattle largely prohibits such consideration in the screening of rental applicants and any violations of the City may determine to be as a result of a landlord's use of such consideration in rental decisions could be subject to fines of $55,000 or more. Landlords throughout the rest of the state would be subject to the laws and regulations set forth in the Washington State landlord-tenant code and any policies regarding the consideration of a rental applicant's or tenant's criminal history would have to be clearly outlined in written criteria for screening of applicants and considered on a case by case basis.
How much does a bad tenant placement actually cost in Washington State?
Eviction legal fees can cost anywhere from $3,000 to $5,000 in Washington. And that's not even counting the lost rent during the eviction process and any necessary repairs to your property. All in all, the cost of a bad tenant can be in excess of $50,000 for higher rent properties. That's why front-end screening is so crucial to owners.
Should I allow pets in my rental property?
We recommend a pet-friendly approach to rentals with a good screening process in place rather than a full ban on pets. While some people may not consider to rent a property with pets, many others will not consider a property without. This can result in a significantly reduced pool of potential renters interested in your property. A no-pets policy does not necessarily mean that people will not bring pets to your rental – it simply means that you won't know about them until damage occurs. Allowing pets with proper screening can result in a much higher quality of renters. In our current market, a pet screening service would allow you to charge pet rent (typically $25-$75 per month per pet) and a damage deposit to price the risk of pets to potential renters before they move into the rental property.
What makes professional tenant screening different from doing it yourself?
This type of tenant screening is very different from how a property owner typically holds an open house and shows the home to as many applicants as possible until they find a tenant. When there is professional tenant screening done at the beginning, the process is applied consistently to every qualified applicant, legally sufficient records are maintained to demonstrate the basis of the decision, and the process of finding a tenant is conducted in a manner to assist the owner.
If you have any questions or need any advice on tenant screening, just give us a call. The screening process can be complicated in the State of Washington and we can help provide some additional information and act as a resource for property owners who want to have a professional tenant screening process set up in order to protect their interests.
