13 Oct 2020
6 min read
By Selinda Randall, PMSS Team Member

Tenant selection: An art, or good management?

Tenant selection, Tenancy data, Application Process

Is there a particular formula for good tenant selection, or does it simply come down to excellent management?

Tenant selection is both an art and the result of excellent management, and the ability to choose the right tenant for a property is essential. Not only does it affect a client's satisfaction level, but it sets the tone for how the tenancy will continue. An agent must do everything in their power to ensure they're screening prospective tenants and applications to the best of their ability.

In the same vein, it's important to remain as impartial and objective as possible, ensuring any preconceived biases from the decision are removed. Property managers need to be able to explain to their client exactly why they've accepted or declined a particular applicant.

An agency and/or Lessor may have differing deciding factors for an application depending on the property, but agencies should have a a minimum selection criterion in place to ensure all applications are processed to the same standard. These criteria can then be used to identify minimum expectations of each applicant, and when these are applied to each and every applicant, an agency can ensure all are assessed fairly and consistently.

Agency selection criteria are established by each individual agency, but the process for tenant selection may include the following:

Tenancy Databases

It's reasonable for the agency to want to know that the applicant is not listed on any tenancy database. The agency will check all applicants on the database their office subscribes to (e.g. TICA or NTD) to ensure the applicant has not previously been listed as a defaulting tenant by other agents.

Database laws impact how an agency use these databases. Property managers must inform applicants of which database their office uses, how they use it and how the tenant can contact the particular database provider. Agencies must also advise the prospective tenant if they find they are listed and how the tenant can have the listing amended or removed. More information on the rules around tenancy databases is available in Chapter 9 of the Residential Tenancies and Rooming Accommodation Act 2008.

Ability to Pay Rent

An agency on behalf of their Lessor will want to ensure the applicant can provide evidence of their ability to pay rent. There's a commonly used ratio within the industry of the rent not exceeding 30% of the applicant's gross income. However, it's important to note this ratio isn't legislated.

To verify the applicant's financial ability, the agency may contact the employer that the applicant has listed on their application. In addition to this, the agency may request the applicant to provide evidence such as payslips or an employment contract.

If the applicant is self-employed, the agency may look for alternative evidence to verify affordability such as the applicant's accountant and/or evidence such as tax returns.

Ability to Care for the Property

The application form will request previous housing information from the applicant, regardless of their housing history. An agent would generally seek evidence to support this information such as identification which shows the applicant's current address.

Verifying this information usually involves seeking information from the previous agent (if they rent the property) using the REIQ Previous Lessor/Agent Reference (Form EF092). When contacting the applicants current or previous agent, you should be determining if the applicants have the ability to care for the property (as well as the ability to pay rent).

If the applicant has owned their own home, an agency should confirm this through RP Data and contact the agent who is either selling or managing the property. Although they will not be able to provide ÄúrentalÄù history, the agent can provide information on the property's presentation, number of pets (if any) and general feedback on the ÄúattitudeÄù of the applicant.

For applicants who have never rented or owned a property, the agency may contact their parents/guardians to discuss the applicant and the validity of the information they've provided.

Personal References

Most agencies request two or three personal references from people who have known the applicant for a period of time and are not relatives or partners.

Identification

The agency will require an applicant to provide 100 points of ID and best practice would be to ensure at least one of those is a form of photo ID and another contains a current address and signature.

Tenancy Agreement in a Company Name

In this instance, the agency is to ascertain the same level of verification as they would for an individual, which includes a company search, information on affordability from the company accountant and references. It's important to verify and retain evidence as to who is able to sign documentation on behalf of the company.

Finalising Applications

Applications should be processed as soon as possible. Keep people informed of expected time frames, and let them know if there are any delays in processing their application. Once a decision has been made, let applicants know so they can either continue to look for another property or make arrangements to finalise the application if they are successful.

5 Quick Tips for Processing an Application

1. Google the phone numbers provided for references to ensure they match the information provided.

2. When an applicant's previous rental history has been a private Lessor, always use RP Data and to ascertain whether or not they're speaking to the actual Lessor.

3. Google the applicant's name and see what search results come up.

4. Search public bankruptcy or insolvency sites such as VEDA or the Bankruptcy Register.

5. Remember, applicants can ask for their application to be returned so do not write on the application, always have a cover page for recorded information.

REIQ members with further questions on this topic or others can contact the Property Management Support Service on 1300 697 347 or at pmsupport@reiq.com.au. Not a member? Join today.

Are you up to date with the new tenancy laws coming into force on 1 October 2022? If not, download our free toolkit and purchase the training video here.

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