You have your tenant screening report(s), how do you go about accepting and rejecting applicants? Below is a brief rundown. See the complete episode for more information.
Firstly, refer to your rental criteria checklist we discussed in episode 5. Did they meet your selection criteria? If not, move on.
First in Time Rules
If you are in a place where this exists, you must offer the tenancy to the first applicant who meets your criteria. Due to this, we recommend only running tenant screening on one person at a time.
Adverse Action Notice
If you reject an applicant due to the results of the screening report, you must send them an adverse action notice. An adverse action is any action by a property-owner that is unfavorable to the interests of an applicant or renter.
If you reject an applicant, increase the rent or deposit, require a co-signer, or take any other adverse action based partly or completely on information in a consumer report, you must give the applicant or tenant a notice of that fact in writing, electronically, or orally (we advise in writing so you have record of it).
An adverse action notice tells people about their rights to see information being reported about them and to dispute inaccurate information. The notice must include:
- The name, address, and phone number of the CRA that supplied the report
- A statement that the CRA that supplied the report did not make the decision to take the unfavorable action and can’t give specific reasons for it
- A notice of the person’s right to dispute the accuracy or completeness of any information the CRA furnished, and to get a free report from the CRA if the person asks for it within 60 days
Many screening services will provide one for you to send your applicant, and in some cases, they will automatically send the notice if you indicate you’ve rejected an applicant due to credit issues.
Deposit to Secure Occupancy
When you have chosen a tenant and they have indicated that they will accept it, you will want to take it off the market so you don’t have to continue showing and screening people. But until a lease has been signed and the new tenant has moved in, how do you protect yourself in case they change their mind, don’t sign the lease, or don’t pay those move-in costs? We advise you to take a deposit to secure occupancy.
To incentivize tenants to follow through with the occupancy, draft up a quick agreement and collect a deposit. It is oftentimes equivalent to part of a month’s rent or the entire security deposit. It should be enough to make it matter, to ensure that people don’t walk away once you’ve taken your ad down. After move in, this deposit can be applied to the first month’s rent or the security deposit.
The agreement should also state that the deposit will be forfeited if the tenant fails to sign the lease or indicates they will not move in as previously agreed upon. Only after the deposit has been collected and the form has been signed should you take the property off the market, cancel advertising, and cease showings.
While drafting this agreement, ensure that you are following all local laws. For example, in Washington state, the amount collected cannot be greater than 25% of the first month’s rent.
Takeaway
When accepting and rejecting applicants, use your tenant selection criteria to make the process easier. Also ensure that you are following all rules and laws — send an adverse action notice, follow the first in time rule, and take a deposit to make things official.
Landlording A-Z Series:
Our Landlording A-Z series will walk you through each of the stages, tasks, and issues involved in rental real estate investing. In our next installment, we’ll discuss everything you need to know about rental agreements.
