I’ve talked here about the rise of the fraud economy, and why your customers are quickly becoming as much of a risk as they are an opportunity.
In the apartment industry, the prevalence of fraud has coalesced around a central point: the leasing application process, the moment when renters first get their foot in the door.
To gain insight into how managers are tackling these application screening challenges today, and get a handle on their biggest pain points along the way, my application fraud detection firm commissioned a survey of 230 institutional property managers nationally.
Dallas-based Eleven Market Research talked with some of the largest apartment operators in the US; 40% of respondents manage more than 10,000 units. All of them focus on the application vetting process in their jobs, with most (84%) leading teams of professionals who qualify rental applications themselves.
The 2022 Snappt State of Apartment Application Screening Survey highlights their biggest concerns and identifies the three most important steps to fight this scourge.
Take the experience of Rachel Palmer, chief administrative officer at Tampa, Florida based American Landmark Apartments, which counts 35,000 units in its portfolio.
She reports about four in 10 of the applications her team vets each month are fraudulent. Most come in the form of altered bank statements and bogus pay stubs, documents that are easily obtained online today, but are hard to spot with the naked eye.
With an average rent of $1,500 a month across the units she manages, that translates into $21 million in revenue that’s at risk every 30 days if she doesn’t stop those applicants from becoming her tenants. “It’s not pocket change,” Palmer says.
A national crisis
It’s not cheap for the average portfolio, either.
Nationally, the typical eviction costs $7,685 after unpaid rent, legal fees and other charges are taken into account. With one out of every eight applications – 12.5% -- fraudulently altered today, that translates into an avoidable expense of $2.8 million per year for a 3,000-unit portfolio.
Those numbers haven’t gone unnoticed in the industry. Like Palmer, apartment managers are increasingly aware of the problem: 85% now report being targeted by application fraudsters, compared to 66% pre-pandemic.
At Alpharetta, Georgia-based Pegasus Residential, Area Vice President Ellie Norton is responsible for approximately one-third of the firm’s 33,000 units, including the application vetting process.
But since the advent of COVID-19, that part of her job has become significantly more challenging, with the cost of bad debt and avoidable evictions rising to more than $20,000 a year per door when someone submits bogus income documents and then can’t pay rent.
Due to concerns over running afoul of requirements for the Fair Housing Act and Fair Credit Reporting Act, these same managers often feel powerless to confront the issue head on.
“It is incredibly important in our business to ensure that we're not in any way, shape or form violating Fair Housing Laws,” Norton told us. “But oftentimes, the fraudulent applicants are the ones that fight back the hardest.”
The three core components of the application screening process
The survey identified nearly a dozen different tactics property managers take to fight the issue, including running credit checks, using tenant screening software and performing criminal background checks.
But just three roses to the top as being somewhat to extremely important for an overwhelming majority of managers:
--verifying an applicant’s ID (92%)
--authenticating paystubs (90%)
--validating bank statements (89%)
For anyone on the front lines of fighting apartment application fraud, the critical nature of these steps is obvious.
First, you have to make sure the person applying to live in your building is who they say they are; otherwise, the entire relationship is based on a lie. Then, you need to confirm their income and financial statements are genuine and coincide with what they claim.
But while there are numerous ID verification solutions on the market, actually figuring out if paystubs and bank statements are real in today’s marketplace turns out to be maddeningly challenging.
Indeed, nearly three-quarters of managers told us verifying bank statements (72%) took the majority of their time during the application vetting process, while two-thirds said authenticating paystubs (67%) fell in the same bucket.
“The thing of it is, our teams are not investigators,” Landmark Apartment’s Palmer told us. “We are a sales team. Our job is to sell apartments. And when deceit comes into play, it's hard to catch it all, because there's so much of it.”
I won’t hard sell our solution here, other than to say it uses AI to look at the digital DNA of those documents to drastically cut the time teams spend on this problem. It also takes the human element out of the process, a key step for defending Fair Housing claims.
There are other, low tech ways to address the three most critical components managers identified in the application vetting process:
With rents on the rise, it may look like landlords are living on easy street. But the increased risks of apartment application fraud, and the lingering impacts of the pandemic, mean managers have to work harder than ever to make sure they’re not actually accumulating record levels of bad debt, instead of higher rent rolls.
Targeting the three most important areas of the apartment application vetting process, including ID verification, paystub confirmation and authenticating bank statements, either manually or using technology, is the best place to start.