In Denial–Tips On Rejecting the Tenant Application

Delivering bad news is never easy. But for the self-managing real estate investor, it goes with the territory. Inevitably you will have to reject a rental applicant. Here are some suggestions in making the call and taking some of the sting out of the follow-up.

Be Preemptive. Rental applicants with credit problems frequently raise the issue when they first call in response to an ad or at the time of the showing. While I never ask applicants about their credit or make any attempt to pre-qualify them, if they raise the issue, I try to find out specifics about what concerns them and what might concern me. For example, if the applicant asks about a specific issue, such as a prior bankruptcy, I address it and follow up with a question. So, while I’ll tell an applicant that a prior bankruptcy won’t, by itself, prevent approval, I’ll ask if the applicant has had any credit problems since that time. Quite simply, I don’t want to take an application that I can’t approve. I don’t want to waste an applicant’s application fee or my time.

Be prompt. The thought of an unpleasant task can cause the best of us to procrastinate. Putting off a tenant denial will weigh you down, and it just isn’t fair to the applicant. After we receive a rental application, we attempt to approve it within 24-48 hours. That’s about the time it takes us to obtain employment and income verifications. But most rejections are the result of credit and background reports. Those reports can be obtained the same business day, and the review can (and should) take about 10 minutes. Make the decision, inform the applicant, and move on.

Be Decisive. Don’t second guess your decision. If your background check turns up a show stopper, deny the application. If your first review of the credit report tells you it’s a thumbs down, go with that decision. If you’ve decided to approve an application despite credit risks, approve it and don’t look back.

Be Discreet. Rejection can be embarrassing. Always consider that an applicant may be at work or with friends when you call. When calling a tenant, I give them an opportunity to let me know that it’s not a good time. I start by asking, “Do you have a moment to talk about your rental application?”

Be Direct. In notifying an applicant that her application has been rejected, a straightforward approach is best, for you and the applicant. Occasionally, an applicant’s credit report will raise a question that you need to address to the applicant. But this is the exception, not the rule. So, for the most part, this is the time to inform, not discuss. Two sentences should do it: “Unfortunately, we’re not able to approve your application. Your credit report shows some items, such as [this one example]” In most cases, an applicant will offer an explanation, deny the accuracy of the information in the credit report, or suggest why the particular creditor or landlord acted unfairly. Over time, I’ve come to the conclusion that this part of the conversation is more to ease an applicant’s own embarrassment than to change my mind. And that’s OK. So I will listen. Then I’ll offer this simple truth. “I understand, and I hope you’re able to work with the creditor to get that cleared up. But I have to make a decision based on the information that I have now.”

Real estate investing is a business. Your owe it to yourself to make decisions and act on them in a manner that makes good business sense. But it’s also a business of dealing with people. You owe it to them to show simple understanding and respect.

One final note. In a recent article, I mentioned the issue of legal compliance in conducting tenant screenings. The Fair Credit Reporting Act also has implications in denying applications. Next week, we’ll be more taking a more detailed look at the FCRA requirements and providing a free form to assist in that regard.

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Tagged as: Property Management, Rental applications, tenants