Changing demographics and a more challenging economy require an adjustment in resident screening tactics to keep risky applicants from slipping through.
In response to an apartment industry trend that shows more prospective residents are applying as roommates, Associated Estates has adjusted its screening criteria to help account for this demographic.
In the past, potential roommates at an Associated Estates community had to apply and be approved separately, says Miria Rabideau, Vice President of Operations for the Richmond Heights, Ohio-based REIT. That meant that if one roommate didn’t meet screening requirements, both applicants were denied, even if one had good credit.
In an effort to approve more applicants without increasing risk, the company adjusted its screening methodology to take an average of the roommates’ credit scores. That average is applied to the community’s scoring model and, after a review from a vice president at the company, the roommates are approved with a certain deposit amount or denied—just as an individual renter with that score would be handled. The change allows the company to maintain its low levels of bad debt while approving more applicants.
“We have to be smart about who our resident profile is and how households are being formed now,” says Rabideau, whose company owns and manages 12,000 apartments in high-barrier-to-entry submarkets in the Midwest, Mid-Atlantic, and Southeast regions of the country. “A lot of applicants are Generation Y individuals out of college, pairing up with their parents or with each other. This has helped us to approve more of those roommate situations.”
Fighting Social Security Number Fraud
When a couple of potential residents applied to a community managed by Casto Property Management, the community’s management staff found something odd about the application: the applicants had used their deceased parents’ Social Security numbers.
After further investigation, the staff found it wasn’t an unintentional error. The applicants were trying to conceal potentially damaging evictions that were on their records.
A recent rise in identity fabrication—well publicized in the mortgage industry—has found its way to apartment housing, screening and apartment management experts say. This has made application misrepresentation a serious concern. Some apartment management companies are addressing the challenge by developing new, more cautious models to handle application documents, identification requirements, and authentication.
Casto and its screening provider, for instance, have instituted a program that searches applicants’ Social Security numbers through a nationwide database to see if they have been assigned to someone else, says Megan Bell, Regional Manager for Residential Apartments at the Columbus, Ohio-based firm that manages 4,300 apartments, primarily in the Columbus area.
Before the company began the program a year ago, fraudulent applicants may have been able to rent an apartment using the credit report on the invalid Social Security number they supplied. Today, such applicants are denied until they can verify their credit.
Fraud prevention efforts help the company ensure consistent revenue for its owners, says Jim Cunningham, the company’s Executive Vice President. “If we can catch a problem before it happens, it’s much easier to deal with on the front end,” he says. “It cuts down on the collections we have, and it’s easier to track down residents who do skip on their rent.”
Willingness To Pay
Higher levels of uncollectable rent are an unfortunate product of a down economy, fueled by jobless renters moving out of their apartment or back home with their parents after layoffs. One key to minimizing delinquency is using a screening provider that evaluates not only ability to pay, but also willingness to pay, says Karen McAlonen, CPM, Regional Vice President in King of Prussia, Pa., for owner and operator Morgan Properties.
Credit scores from credit-rating agencies, which provide a national credit ranking based on an individual’s credit history for the past seven years, may be more appropriate for the credit card, automobile and mortgage industries than for the apartment industry, which has a younger demographic, say screening experts.
For apartment providers, a screening model that weights certain factors, such as a renter’s credit history in the past two years, can be a better indicator of delinquency risk and willingness to pay rent.
“It’s critical to look at willingness and factors such as the trends over the last 24 months,” says McAlonen, whose company owns and manages 30,000 apartments at 131 communities.
Eliminating the Deposit
Collecting delinquent rent from evicted residents is often futile. That’s especially the case with a rising jobless rate and a difficult economy, says Liz Jowett, Property Manager at Chieftain Manor Apartments and Maple Hills Apartments in St. Louis. “Most of the time we don’t recover much, if anything,” she says.
To address this costly problem, Jowett is planning to use a new screening service that reimburses the community up to a set amount if a resident defaults and a judgment is delivered. While the screening service will eliminate some of Jowett’s legwork in checking potential residents, it will also help the communities to lower the necessary deposit for applicants and to approve more applicants, Jowett says.
“We’ll be able to eliminate the security deposit almost completely,” she says. “It’s harder today for people to come up with the first month’s rent and deposit. If I can give them the opportunity to eliminate the deposit because I have my own guarantee, it makes it easier for them to apply.”
The added protection also makes it less risky for the communities to admit a wider range of residents. “It allows us to work more with people who might not have the best credit, or who had some credit issues in the past,” Jowett says.
ResidentCheck, CBCAmRent and APG contributed to this article.
FYI: For a list of National Suppliers Council members who provide resident screening services, please see page 75.