There was a time in the multifamily industry when apartment managers set the rents at their own properties.

Since real estate is always a local game, the thinking was that the boots on the ground – apartment managers at specific buildings – knew best what rents to charge in their neighborhoods.

That knowledge didn’t come for free, though. In order to develop their own expertise, those same managers physically “shopped” the competition, posing as prospective renters and applying to live at neighboring properties. By doing so, they could get a real, apples-to-apples feel for what amenities their competitors offered and how much rent they were getting for them. But the cost was hours of detective work.

Then, in the mid-2000s, apartment firms began using revenue management software to set prices. Based on the same technology airlines and hotels had used for years to determine rates based on supply and demand, the programs established apartment prices by looking at comparable rents and vacancies in the area to spit out a number for property managers to use.

Initially, there was pushback against the technology. Local property managers railed that their hard-won, market specific knowledge couldn’t be replaced by a black box. They didn’t want to give up their roles as detectives. Also, how would the programs account for the sixth sense that managers often had when a market started to change?

Turns out, the programs could use the data to determine that nuance quite well. Early results of revenue management ranged from revenue increases of 2% to 10% in many portfolios – or a cool $6 million at the low end for one operator.

Today, revenue management is built into many property management software systems, which have undergone a similar adoption revolution. Far from the days when landlords used spreadsheets to run their properties, residential property management users now account for two-thirds of the booming property management software market.

Today’s detective work: tenant screening

Yet, while the industry has come a long way from going undercover to shop its competitors and running businesses via Excel spreadsheets, there’s still one area many apartment managers tackle the old-fashioned way: tenant application screening.

Today, most run credit and criminal background checks electronically, but the fundamental tasks of confirming potential renters’ identities, employment and income still take a lot of detective work.

Indeed, manually checking references over the phone and confirming income and employment consumes the majority of time in the application process, according to a recent survey of 230 institutional property managers, and can take up to 10 hours.

At a 300-unit community with an industry average turnover rate of 45%, that’s nearly 1,400 staff hours. That time suck can be detrimental in competitive markets, where managers need to process applications within 24 hours so the prospect doesn’t move on to the next building.

Complicating the process further, many rental applications today are fraudulent. Potential renters now have a wide array of tools available online to alter documents such as paystubs and bank statements. The problem is so widespread that 85% of property managers now report being targeted by application fraudsters, compared to 66% pre-pandemic.

To combat this, many managers still use manual investigation techniques. While it’s difficult to determine with the naked eye whether a paystub or bank statement has been electronically altered, tricks of the trade include matching up a paystub and deposit dates on bank statements, an area where fraudsters often get sloppy. Requiring two months of documentation is a go-to technique as well, but that of course just doubles the amount of paper leasing agents have to process with an application.

Building a tenant screening tech stack

Fortunately, as with the advent of revenue management and property management software previously, there is a better way today.

Apartment-industry specific property management solutions from Yardi, RealPage, MRI, Entrata and AppFolio all include tenant screening functionality.

Criminal background and credit checks

Each system allows managers to electronically perform credit and criminal background checks in compliance with Fair Housing law, providing a baseline of screening. They run those checks against a multitude of state and national criminal databases within minutes, allowing property managers to judiciously eliminate candidates who have committed violent crimes, serious felonies reflecting financial fraud, illicit drug manufacturing, burglary and arson, and sex offenders. Having that kind of delineated criteria is important, since FHA and HUD regulations prohibit property managers from having a blanket ban simply against applicants with a criminal or arrest record.

Beyond criminal background checks and credit reports, these systems can also provide a view into eviction, income and rental history. Metrics can be customized to pre-set ranges so that each application receives the same treatment. That’s critical from both a quality assurance and compliance perspective.

Bank account linking

These tools can also link to prospects’ bank accounts for payment to ensure timely receipt of rent and a basic degree of fraud protection for managers, since they can verify the validity of an account beforehand. While that’s a good first step, it only works if prospects and tenants agree to link their accounts; property managers can’t legally require them to do so.

ID Verification

Other software providers offer specialized ID verification solutions so property managers can know that prospects are who they say, which is critical given the rise of identity theft today. Indeed, a recent survey of property managers found that verifying a prospect’s ID as legitimate was the most important step in the tenant screening process.

CheckpointID, IDinsight, IDology, Jumio, Onfido and Trulioo all offer point solutions that integrate with major property management systems to ensure IDs are legitimate.

The products analyze data from thousands of sources across multiple layers of identity attributes within minutes. They sniff out anomalies in addresses and email sources, as well as manipulations in photo IDs. They typically scan the 2D or MRZ codes on government-issued IDs for verification and use facial recognition to match an application with the picture on the ID. This last feature is particularly useful for online screening.

Application fraud detection

Documentation fraud detection software completes the tenant screening loop by checking the digital DNA of financial documents. It is all too easy for applicants to make subtle changes online to bank statements, pay stubs, and W-2s. To the naked eye, these documents look legitimate.

There are four types of document fraud that can easily be overlooked manually:

• the use of the wrong font for a particular document
• the use of a different application from what the document would normally use
• the shifting of values to make it look like the applicant earned more money
• altering dates to extend the duration of employment or length of higher salary histories

Each of these manipulations is easily achieved with tools that are readily available online today. There are even fraud coaches on YouTube who guide viewers through the process.

Documentation fraud detection systems employ forensic and image analysis, and data-driven algorithms, to spot these fakes byte by byte. They compare applications against authentic historical document databases to identify micro-anomalies and flag digital alterations. In the end, they either accept or reject the documents, giving managers a clear outcome to present to a prospect that the system flagged their documentation. Legitimate applicants will ask questions and offer other means for verification, while fraudsters will typically withdraw their application on the spot.

The automated approach

By building a modern tenant screening tech stack, property managers can take a lot of the manual detective work out of vetting their lease applicants. No one solution does it all. But by combining property management software to conduct criminal background and credit checks, ID verification tools to know prospects are who they say and documentation fraud detection solutions to flag bogus financial statements, today’s apartment pros can bring tenant screening into the modern age. The 2022 Comprehensive Guide to Tenant Screening Best Practices is a guide to learn more about effective tenant screening practices.