Well, I could have named this post “Communicating the results after processing the application”, which would have been both accurate and less shocking, but we all know how to communicate good news, so there’s not much teaching required for that. It’s the bad news that’s so hard to deliver. So, as I believe in calling spade a spade, the article is titled “Rejecting an Application”.
If you are new to this blog, we talk about owning and operating rental houses in the Dallas, Fort Worth, Denton area a.k.a DFW metroplex. I would recommend reading Getting a Mentor followed by the Getting Started page.
First, if you have followed the steps we have discussed in the earlier posts like including your application instructions in the marketing material, conducting the pre-qualification over the phone and having a documented qualification criteria, you will seldom find yourself with an application that you must reject. More often than not, a person who does not qualify would not have applied in the first place. However, there are some exceptions:
1. A person working with an agent: When your applicant is represented by an agent and your discussions have been with the agent, not the applicant, then it’s possible that the agent has not communicated your criteria to the applicant. It’s also possible that the agent is representing his/her client in the best light and so does not want to tell you that they don’t make sufficient income or have bad credit upfront. After all, they may be dealing with landlords who don’t care all the time. They may not know you have a different business model. From your side, it’s best to be very clear with the agent when they first call about the house and make sure they pre-qualify their client the way you would. Refer the agent to your application instructions and tell them they have to sign that as well. But, even with all that, your chances of getting an application from an unqualified client who is working with an agent does exist as agents work for their clients and their job is to get them the best house at the best price, which is yours!
2. Sweet Taking Salesmen: People who believe they can sell themselves into anything. They may have misrepresented themselves to you over the phone and may have sweet-talked you at the showing. They are hoping you will ignore processing their application and go by simply what they have said. After all, many landlords do pocket the application fee as they believe they know how to judge a person and don’t need any paper. This behavior is not even penny wise but is certainly colossally pound foolish. Don’t be one of those landlords.
3. Honest Mistakes: These could be yours or theirs. For example, you may have forgotten to mention that you do not accept smokers. They may have missed that your property is not available for another month. Whatever the case may be, mistakes do happen.
There may be other reasons why you find yourself in a situation where you have to reject a person’s application. Now, you may have spent time talking to this person over the phone, showing them the house, made accommodations for collecting the application and the fee, deposited their money order or cashier’s check in your bank and spent time processing the application. So rejecting is a waste of time and if you find yourself doing too many of those then you are not being clear upfront. So review your processes and adjust them.
So, how do you reject an application? You must communicate the status of an application in writing even if the application was hand delivered to you. The application form asks for an email. You can use that to respond. If you are working with an agent, you will have access to the standard “Denial of Lease” form. This form is simple and effective. It states the parties who have applied, the property for which they have applied and the reason for denial. As you have documented your qualification criteria and you have publicized your requirements and process in your application instructions, the reason for denial should be no surprise to the applicant.
Rejecting due to credit: If you reject a person due to information found in their credit report, you must provide the number of the agency that gave you the report. You may not be able to provide a copy of the credit report to the applicant yourself as that could violate the contract you have with the agency that is providing you the report. They will have to contact the agency to get a copy. Note that the agency is not the one rejecting them, you are. You are rejecting them as whatever you found in their credit report does not meet your criteria. As we mentioned earlier, get your documented qualifying criteria reviewed by your attorney.
Once you have made the decision to reject an application, do it immediately. Do not hold onto one hoping for a better one. Either accept or reject. Finally, whenever you are rejecting an application, have a documented record of the application, the inquiries you made, the reason for rejection and a copy of the rejection letter.
What if you get multiple applications? If you have rehabbed the house as we have talked about before and priced it below market as well, then you may find yourself with multiple applications. Process them in the order you received the complete applications. If one person gave you the application without the application fee and another gave you the application and the fee, you only have one completed application regardless of the order. Note that you have made it clear in the application instructions that there’s a fee to processing each application and you process only full applications. If you are rejecting an application as you have accepted an application that came in before them, return the application and the fee. Do not pull someone’s credit unnecessarily.
Now, if you have approved the application, it’s a much easier call to make and you can go do that but follow up in writing as well. Be sure to tell your approved tenants that you will remove the property off the market and hold it for them as soon as you receive the security deposit.