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CHICAGO, Sept. 05, 2018 (GLOBE NEWSWIRE) -- A newly released Forrester Consulting study found that the majority of property management companies have been affected by fraud, but due to the emerging nature of the problem, they are not well equipped to manage the issue. The emergence of fraud in this industry is clear as the study found that more than eight out of 10 decision makers at property management companies have experienced fraud up to 20 times within the past two years.
To take a closer look at this growing problem, TransUnion commissioned Forrester to conduct the August 2018 study that explored fraud in the single and multi-family rental industry. The research study, titled, “Misunderstanding and Inconsistency: The State of Fraud in the Rental Housing Industry,” is available for download today. Rental industry executives can also register for TransUnion’s Property Management Summit to learn more about this research.
In this study, Forrester conducted an online survey of 153 multi-family and single-family property management organizations in the U.S. to evaluate fraud in the rental industry. Survey participants included decision makers in the organizations and was completed in August 2018.
“Working closely with property management companies for the last few decades, it was apparent to us that the prevalence of fraud was rising in the rental industry. The Forrester study confirms this,” said Mike Doherty, senior vice president in TransUnion’s rental screening business. “In the last two years, virtually all of the property managers surveyed have experienced fraud, and the research highlights that this is a costly problem from both a fiscal and reputational standpoint.”
The study found that the advent of online rental applications is a primary driver for the fraud that exists in the rental housing industry today. Online applications are now outpacing those that are submitted in-person, with nearly 59% of applications taking place online. As a result, more than half of property management companies surveyed identify online applicant-based fraud as a critical or near-critical issue.
To what extent is applicant-based fraud an issue for your company?
*Rated on a scale of 1 to 5 (1= not an issue to 5= critical issue). Base: 153 asset management decision-makers at US residential real estate/property management companies.
Identifying the Types of Fraud in the Rental Industry
To mitigate fraud risk in the rental industry, property managers must be aware of the key forms of fraud taking place – synthetic fraud, digital fraud and true name fraud.
“In all of these cases of fraud, a property manager will find that the resident they may try to evict does not actually exist or is not the person in their rental unit. As a result, the property management company can lose thousands of dollars of potential income and impact their hard-earned reputation,” added Doherty.
Catch the Fraudsters Early, or Pay the Price
In the study, 95% of property managers admitted to experiencing difficulties identifying, mitigating or preventing fraud. A significant problem that was acknowledged was the timeframe in which the incidence of fraud was first recognized. Three out of four property managers identified fraud after move-in, with more than one-quarter discovering the fraud much later into their lease – seven months or later.
“Skipped” rent payments are usually what tips off property managers that a fraudulent issue is at hand. According to the study, turnover occurs during the lease cycle, costing property managers thousands of dollars.
How long after move-in were you able to identify the fraud?
|More than 12 months after move-in||7%|
|7 to 12 months after move-in||20%|
|2 to 6 months after move-in||48%|
|Within 2 months after move-in||24%|
*Base: 108 asset management decision-makers at US residential real estate/ property management companies
This can quickly become an expensive problem as TransUnion’s ResidentCredit has found that the average eviction or skip balance owed is approximately $4,215. It can take anywhere from 90-150 days to evict a tenant, and additional expenses such as lost rent, back rent, and leasing and marketing costs can also pile up.
Discovering Fraud and Preventing it in the Future – Keeping up with the Sophistication of Fraudsters
A common misconception surrounding fraud prevention is the distinction between applicant screening and fraud mitigation. About 55% of property managers indicated that background checks were what triggered a fraud alert.
However, conducting a background check is not the same as applying fraud detection before move-in. It was also noted that many property managers assumed that a driver’s license scan was an effective fraud prevention measure; however, this tactic does not protect against the full scope of fraud that is prevalent today.
“Many property managers do not realize that true fraud mitigation should take multiple factors into account for a comprehensive solution,” said Doherty. “Property managers are in need of better technology so they may flag fraud at the first warning sign. Once they are more effective in getting the right renters, they will reduce the involuntary turnover cost, impact to reputation and become more cost efficient.”
Study participants seem to understand this. Nearly all (94%) of property management decision-makers surveyed believe there will be severe implications to not investing in a fraud technology solution.
“With fraud proliferating in the rental industry, property owners and managers can only keep up by radically transforming their approach to preventing and managing rental fraud,” concluded Doherty.
To learn more about the Forrester Fraud Study, please click here.
About TransUnion (NYSE:TRU)
Information is a powerful thing. At TransUnion, we realize that. We are dedicated to finding innovative ways information can be used to help individuals make better and smarter decisions. We help uncover unique stories, trends and insights behind each data point, using historical information as well as alternative data sources. This allows a variety of markets and businesses to better manage risk and consumers to better manage their credit, personal information and identity. Today, TransUnion has a global presence in more than 30 countries and a leading presence in several international markets across North America, Africa, Latin America and Asia. Through the power of information, TransUnion is working to build stronger economies and families and safer communities worldwide.
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