The Cost of Skipping Tenant Screening
February 13, 2019
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Particularly for first time landlords, tenant screening may seem like a waste of time – an unnecessary road block standing between you and your rent checks. Who is prepared to interpret a credit report or a background check? You trust yourself to meet a prospective tenant in person and judge whether or not they’ll be a good fit, so why waste time and money running them through the mill of screening services? Ironically, time and money are the exact things you’ll end up wasting if you don’t invest in a proper screening process. In fact, the cost of not screening your tenants can be surprisingly steep.
Average Cost of Tenant Screening
Before we can understand the cost of not screening a tenant, it’s important to understand the cost of actually doing it. Typically, a tenant screening will run you anywhere from $20 for just a credit or criminal check, all the way up to $100+ for an extensive, all-inclusive report. We also strongly recommend you make a point of investing some time and attention to the reports returned. This means verifying information (like calling a listed employer) and discussing any red flags with the tenant. A great deal of effort is usually not needed and most landlords only require a middle of the road level of reporting. So, all in all, you should expect to pay a modest sum – $30-35 for a combined background and credit check – and be prepared to invest about half an hour of your time.
As noted, there are various levels of depth that online screening reports cover. For instance, criminal reports can come at the county, state, or national levels. Additionally, databases such as the National Sex Offender Search provide more specific and critical information for you as a landlord. Obtaining the most thorough reports usually costs anywhere from $50-$100+ in total depending on the provider. It’s common to pass some or all of these fees onto the tenant as part of their application fee. If you choose to do so, make it clear to your applicant so they know where their money is going. Transparency is key, as many states prohibit landlords from overcharging or profiting from application fees.
Time is Money, Too
Most information at a state or national level can be accessed instantly through online providers. The main exceptions are criminal records at the county level as well as those provided by 4 states – Delaware, Massachusetts, South Dakota, and Wyoming – that do not participate in online record keeping. These reports typically take 2-4 business days to obtain, but can sometimes take even longer. Additionally, 5 states (California, Connecticut, Maine, Minnesota and Indiana) require verification for any criminal matches found on a consumer report. As a result, these also take a few extra days to process, but doing so ensures all the information is accurate.
The Cost of Skipping Your Tenant Screening
Conversely, if you do not submit your would-be renters to formal screening, you dramatically increase your risk of accepting a bad tenant and going through the eviction process.
Let’s say, for example, that you manage 20 units and, when leasing, you average about 4 applicants that make it to the screening stage. If your average lease is 12 months, you probably run about 80 tenant screening reports in a given calendar year. At $35 per report, you would spend $2800 per year on screening. That’s not an insubstantial amount of money, but keep in mind that a single eviction can cost you as much as $3500. Add to that the fact that 1 out of every 50 tenants in the US is evicted, and you quickly realize that choosing not to screen prospective tenants can be a costly mistake. If you forego screening in order to “save” $2800 per year, it’s not far-fetched to say that you could end up paying for two evictions and $7000 in legal fees. Yikes.
Below, we’ve put together two hypothetical situations to further illustrate the point.
Hypothetical #1: The Tale of Terrible Tony
You’re a landlord who has received an application from a man named Tony. You met with Tony once in person to show him the property, and he gave you a favorable impression. The application is completed and has no warning signs of any kind, so you decide to sign him to your unit without doing a background check. Now, all that’s left to do is sit back and cash in. Until…
Despite the appropriate notices and warnings, Tony has suddenly stopped paying his rent. He has expressed no urgency or remorse for doing so, and you’ve been left with little recourse but eviction. Let’s say rent for the property is $1,000 (right around the US median) and the monthly mortgage is $650. You’ve lost out on one month’s rental income already, and it will be at a minimum one more month before the eviction process is over. And that’s not including the legal fees that are involved. Just like that, you’re $4,800 in the hole! After adding any miscellaneous repairs, cleaning, and the cost of tenant turnover, you’ll be left wishing you knew a little bit more about Tony to begin with.
Hypothetical #2: The Legend of Lying Larry
After the Tony fiasco above, you’ve learned from the past and initiated a thorough tenant screening process. A prospective tenant, Larry, has completed an application, and you pay $35 out of your own pocket for a (now mandatory) background check, credit report, and eviction history. On his application, Larry claims he’s been evicted once before 5 years ago, but you’re willing to give him the benefit of the doubt. After running the reports, however, you learn he’s actually been evicted twice more! You’ve made the decision that in addition to lying on his application, 3 evictions in the last 5 years is too many for you to accept. You let Larry know you’ll be moving on to other more qualified applicants.
No eviction, no stress, and no wasted time – only better decision making.
The Moral of the Story
By no means is tenant screening a perfect science, but there’s no doubt that screening your tenants online can help you make the most informed decision for your rental properties and your business. Therefore, it can’t be stressed enough how critical it is to take the time to do the research on your applicants. It’s a small price to pay to save yourself a lot of hassle down the line. After all, you don’t want to see any Lying Larry’s taking advantage of you or your property.
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