We’ve all done it before: we’ve found an item in a store, brought it to the register, and asked customer service to hold it so no one else can snag it while we shop. We’re used to seeing this practice in the retail industry, but did you know it is also commonplace in the rental world?
Like an item at a clothing store, prospective renters can reserve an apartment with a holding deposit before signing a lease agreement. As a landlord, this tells you that a renter is serious about your property and doesn’t want to risk losing it to another applicant. However, unlike the retail industry, where holding deposits are just a few dollars, an apartment holding fee holds much more weight.
Key Takeaways
- A holding deposit is a sum paid by a renter to reserve a property before lease signing, signaling serious intent and acting as insurance as landlords take the rental off the market. Typically ranging from $100 to $400, the amount depends on local market conditions and the property’s rent.
- Holding deposits are refundable under specific conditions, such as when the renter moves forward with the lease. If the landlord declines the application, the deposit must be returned; however, landlords can retain it if the renter backs out as long as terms are clearly outlined in a signed agreement.
- Holding deposits and security deposits serve different purposes. A holding deposit reserves the rental before the lease is signed, while a security deposit is paid after lease signing to cover potential damages during tenancy.
What Is a Holding Deposit?
A holding deposit is a sum of money paid to a landlord to reserve a rental property while the leasing process is still underway. This holding fee shows the serious intent on both parties’ sides; the renter has committed themselves to your rental and won’t pursue other options. You display your promise to rent the property to the renter by taking it off the market.
How much should you charge for a holding deposit?
An average holding deposit costs $100 to $400. The rate will depend on the property’s rent and the local rental market.
When Should I Charge a Holding Deposit?
Charge a holding deposit after a prospective renter tours the unit and signals they’re ready to reserve it. In competitive markets, serious renters act quickly, and the deposit lets them secure the unit while you conduct your screening process and finalize the lease.
It’s also useful if a renter wants to rent your property but can’t immediately move in. It shouldn’t be a long period until they can move, at most a couple days. However, having the holding deposit ensures that you are protected.
Regardless of the reason, a holding deposit serves as insurance for you in case the renter backs out of their decision. It will help cover lost rental income and the off-market time.
Is a Holding Deposit Refundable?
Holding deposits are refundable if the renter follows through with renting the property. However, if the renter goes back on their promise, then the landlord may be able to keep some or all of the deposit. All terms and conditions should be clearly stated in the holding deposit agreement, including when it is refundable and non-refundable.
Landlords must refund the deposit if they choose not to rent to the potential tenant. This could be for a variety of reasons, from the tenant not meeting screening criteria to choosing another applicant. In these cases, the landlord is the one declining to rent so the deposit must be refunded.
What is a holding deposit agreement?
A holding deposit agreement is a statement that clearly stipulates the terms of the deposit. It should include:
- The names and signatures of the landlord and tenants
- The holding deposit amount
- The conditions in which the deposit is refundable and non-refundable
The key terms to include are the conditions under which you will and won’t refund the holding deposit. If a tenant does move into the property, state how you will refund the deposit. Common methods include refunding it in full, deducting it from the first month’s rent, or reducing the security deposit by the amount of the holding deposit.
To be able to keep the security deposit, you need to clearly state the reasons why and when you would be allowed to do so in the agreement. For example, the renter choosing to back out of renting your property or intentionally providing false information about themselves.
Legal Considerations Regarding Holding Deposits
The laws surrounding holding deposits can be complicated, so it’s best to consult a professional for advice and to make sure you are in compliance. Holding deposit regulations vary widely — some states outline specific requirements, while others have no statutes on them whatsoever. Familiarize yourself with your state’s laws and consult a lawyer to ensure you’re meeting all requirements.
How Long Can Landlords Hold a Holding Deposit?
Apartment holding fees secure the property for an agreed-upon period, typically between 24–72 hours. If the renter hasn’t met the stipulated requirements, such as submitting an application or signing the lease, you can remove the hold and potentially keep the money.
Is a Holding Deposit the Same as a Security Deposit?
A holding deposit is not the same as a security deposit. Renters pay security deposits after their application is approved and signing the lease but before moving in to cover the cost of potential damage made during their tenancy. Holding deposits are used to reserve a rental property before making things official.
The main difference between the two is that holding deposits are not used to cover property damage; rather they solidify an agreement between the landlord and renter. Though similar in theory, these two deposits differ in purpose, cost, and significance but both serve as a form of insurance for landlords.
Best Practice for Charging Holding Deposits
To avoid any confusion or miscommunication about holding deposits, you’ll need to manage the deposits properly. To do this successfully, consider the following tips:
- Create and sign a holding deposit agreement before accepting any payment from the tenant.
- Always accept traceable forms of payment, such as credit cards or checks. Never accept cash payment for a holding deposit.
- Clearly outline the terms and conditions for a holding deposit in writing.
- Keep detailed records of all holding deposits, including amounts, dates received, and reasons for withholding or refunding them.
Remember to always maintain transparency and trust when dealing with holding deposits. Be upfront about the terms of your rental’s holding deposits and provide clear documentation to verify your property. This will ease renter’s concerns and clarify any doubts they may have about your holding deposit policy.
Pros and Cons of Holding Deposits
Holding deposits can help you fill vacancies but sometimes they’re not a fit for you. Understanding both sides helps you decide whether this approach would help your property and process.
Pros of a holding deposit
A holding deposit can provide several practical advantages when managing applicant demand and unit availability.
- Demonstrates applicant commitment.
- Acts as insurance for the time your rental is removed from the market.
- Identifies serious applicants vs. uncertain ones.
Cons of a holding deposit
Holding deposits can also create administrative and legal responsibilities that require careful handling.
- Requires a clearly written agreement about when the deposit is refundable and non-refundable to avoid issues.
- Laws vary regarding holding deposits, so you need to consult a professional.
- Managing holding deposits is an extra responsibility and task on your plate.
Accelerate Your Screening Process with Apartments.com
A holding deposit is most useful when you can conduct your screening process within the short hold period. Screening tenants on Apartments.com gives you the information you need to make a fast and confident decision. You’ll receive a complete screening report, including a credit check, criminal background check, and eviction history. Reports arrive fast so you don’t have to worry about running out of time.
FAQ
What is the purpose of a holding deposit?
The purpose of a holding deposit is to secure a rental property for a prospective renter while the leasing process is underway. This allows both parties to commit to each other and removes competition from the equation.
Can a landlord take more than one holding deposit?
Landlords shouldn’t take multiple holding deposits for the same property to prevent issues. Once a holding deposit is received, the property should be considered off the market until the agreement's conditions are met, or the hold is released and the property is back on the market.
Can a tenant back out after paying a holding deposit?
Yes, tenants can back out after paying a holding deposit but that may mean that the landlord gets to keep the deposit.
What are some red flags regarding holding deposits?
Holding deposits are a way to protect yourself but you still need to watch out for scams. Here are some holding deposit red flags from renters:
- No set move-in date or always changing it
- Unusually long hold time requests
- Incomplete applications
This article was originally published on May 15, 2022, by Chanahra Fletcher.
