Why it's important that your agency has a robust referencing process in place
Tenant referencing can impact whether or not you can retain a tenancy deposit if a tenancy application falls through and could even affect your eligibility for insurance, so it's crucial that you have a robust process in place.
When taking on a new tenant, your landlord wants to know that their property will be well looked after, and that they’ll receive payments on time and in full - especially when letting to new tenants while the pandemic is still ongoing and causing uncertainty. Referencing checks that your landlord’s tenant will meet these criteria and that they’ll be a suitable fit. A robust referencing process goes even further than this and directly impacts your revenue - making the value of referencing even more pronounced.
Referencing and the Tenant Fees Act
Referencing has implications on whether you can legally retain a holding deposit if a tenancy application falls through.
Under the Tenant Fees Act, holding deposits should be returned to tenants if the letting agent or landlord pulls out of the application process. If the tenant provides the relevant information but they fail the referencing process, the letting agent is considered responsible so you would have to return the holding deposit.
Pre-qualifying a tenant before the official process, while not foolproof, can help catch any red flags early on. An application form that’s consistent with your referencing criteria will also provide proof at the later stages if your tenant has given misleading information.
Referencing and insurance
Referencing can’t predict the future. Our recent State of the Industry Report found that, in the 12 months prior to the survey taking place, 92% of the letting agents asked had properties they managed go into rent arrears. An insurance policy, on top of a robust referencing process, adds an extra layer of protection.
Referencing is required for these type of policies, to measure how risky the tenant is. Some letting agents choose to use other companies to run checks. If the same company also provides the insurance policy, this will make sure the criteria are aligned, for a more streamlined process and accurate result.
Plus, you could benefit from an additional source of revenue from commissions paid on insurance you offer your landlords. Policies dependent on the referencing criteria could range from a rent protection or legal expenses insurance, to protect rent payments of a property let to a tenant or the legal expenses that may crop up in its recovery, or deposit replacement insurance, to cover your landlord for longer against unpaid rent and dilapidations than a traditional tenancy deposit.