It is always obvious when we have a popular rental. The phone rings off the hook, emails fly in from multiple websites, and sight unseen-we are asked if we take holding fees. A holding fee is a concept more commonly utilized in large multi-family buildings where there are similar units and a rental office. They work as a commitment device so that the apartment owner is not showing the unit you want while you get your security deposit and schedule an appointment to sign a lease. There are other reasons they are used but the main point is they are non-refundable..often converting toward the security deposit.
When we have a popular home for rent, it seems inevitable that we will be asked if we will accept a holding fee. The interesting part of this is sometimes it is requested because a person can’t get there to see the property immediately. More commonly, it is due to delay that the prospective tenant might have before their spouse or even children can come see the home. Basically, they do not want to lose the right to rent the home. They wish to take control of the process. Taking control means keeping the home off the market also while the background check is being completed.
When taken, a Holding Fee must be non-refundable. I have an agreement for this purpose that is called a “Rental Binder Agreement.” It identifies the parties, the deposit, the last date the lease must be executed and balance of a security deposit and rent payments made, and some other terms that will be a part of the lease. I have used this a handful of times and I really do not like it. In fact, I won’t offer this arrangement unless it is at an Owner’s instructions for somebody they wish to be the tenant.
Why? I truly believe it best to not take a home off the market until there is a fully paid security deposit and executed lease. That way the risk that a person paying a holding fee does not perform is eliminated. We have not lost any time having the home off the market. Prospective tenants go to our website immediately and make application. If approved, they have 24 hours to sign a lease and bring us the necessary funds. If they do not perform, we have never taken the home off the market and possibly have another applicant ready to go.
I also learned the hard way once that a holding fee provides a prospective tenant negotiating room and time to dissect the lease. A tenant, under threat of the landlord moving on to the next tenant, is more likely to sign your lease with little or no discussion. A holding fee buys time..and puts the owner at a risk of losing other tenants while the one with the reservation utilizes every day possible.
I continue to ask other managers what is the benefit obtained by offering a “holding fee” arrangement. Other than the idea that a tenant feels committed (which I do not buy) there seems to be none. If you have a story of how such a fee helped in the rental of a property, please share. For now though, when left up to me, I say “no thank you..we do not offer such an arrangement.”
Related Posts:
Tags: Indianapolis Property Management, Indianapolis Property Manager, property management, Property Manager, security deposit, tenant issues, tenant qualifications, tenant screening, Wilmoth
