On Wednesday, TransUnion and Forrester Consulting released a study titled “Misunderstanding and Inconsistency: The State of Fraud in the Rental Housing Industry.” The purpose of the study is to examine why the majority of property management companies have been impacted by fraud, and how to better manage the issue.
“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, SVP 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.”
According to the study, 59 percent of survey respondents said that reputation damage was the number one impact fraud had on their business, while 46 percent say that fraud adds internal time spent on searching for discrepancies. Either way, fraud is bad for business.
TransUnion notes that one of the driving forces behind the increase in fraud is the increasing use of online applications. Nearly 59 percent of applications take place online, outpacing in-person applications.
TransUnion identified three types of fraud property investors may face: synthetic fraud, digital fraud, and true name fraud. Synthetic means an applicant was a manufactured identity, digital fraud uses fake id’s and spoofed IP addresses, while true name fraud is when a false “applicant” uses a victim’s personal information.
According to TransUnion, a simple background check and driver’s license scan does not protect against the full range of fraud. The key is better investment in fraud prevention technology. TransUnion found that 94 percent of property investors and managers believe “there will be severe implications to not investing in a fraud technology solution.”
The study found that 38 percent of management companies have an in-house built tool, operated by in-house employees, which provides fraud alerts. However, 54 percent still say that there is an excessive amount of time spent on finding discrepancies, while another 50 percent note that fraud changes too quickly, meaning investors cannot adapt fast enough. The study found that 73 percent of managers don't even identify the fraud until after the move-in date, meaning current methods are slow to react.
“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 on reputation and become more cost-efficient.”
“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,” he added.