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What is the cost of a bad reference for letting agents and landlords?
The referencing process is a critical step before tenancy begins. However, a bad reference can have severe repercussions for both letting agents and landlords, including wasted time, financial losses, and damage to reputation.
There has recently been a 140% increase in fraudulent applications for referencing according to data from Goodlord. This surge affects letting agents and landlords significantly, particularly if a property remains vacant due to a fraudulent reference.
The Financial Impact on Letting Agents
Letting agents should understand the financial implications of a bad reference. A landlord’s average lifetime value in managed fees alone amounts to £15,000.
Since the Tenant Fees Bill 2019, landlords in England, Wales, and Scotland cannot charge tenants for referencing checks, even if the tenant fails. The cost, ranging from £15 to £40 per tenant according to Axa, falls on the landlord or letting agency.
Fraudulent applications are not confined to high-value tenancies; they can occur with any property, leading to income loss if not flagged.
The Financial Impact on Landlords
For landlords, bad references can lead to direct financial losses. Without thorough checks, landlords risk having tenants who do not pay their rent. Comprehensive referencing checks ensure tenants are financially capable of paying rent.
Rent Protection Insurance can safeguard landlords if a tenant cannot pay their rent. This underscores the importance of meticulous referencing to protect rental income.
The Time Costs of Bad References
Referencing can be time-consuming, involving numerous checks such as credit and Right to Rent. Gathering and verifying documentation from prospective tenants can be particularly tedious.
95% of fraud arises from income according to data from Goodlord. Verifying payslip authenticity requires significant time and resources. Manual checks are time-intensive and less efficient, highlighting the need for secure, automated referencing solutions.
The Role of Technology and AI
AI technology is increasingly used to create fraudulent referencing applications, making it challenging to detect fake documents manually. Letting agents must adopt advanced technology to stay ahead of fraudsters.
AI and tools like open banking, HMRC, and payroll integration can speed up the referencing process and enhance its accuracy. Investing in the right technology protects agents from financial losses and preserves landlord investments.
The information in this post is valid to the best of our knowledge on the date of posting. It is advised that you seek independent advice based on your individual circumstances.
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