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FAQ: Security Deposits for Vacation Rentals

VERSION 5  Click to view article history
Created on: Aug 26, 2009 6:35 PM by community-editor - Last Modified:  Feb 26, 2014 2:56 PM by community-editor
#Q: What is the difference between a reservation deposit and a security deposit?
A: A reservation deposit is a designated amount of money that validates the booking and usually goes toward the total rental amount. A security deposit is an amount above and beyond the total rental fees and is viewed as insurance in case damages are incurred during a guest's stay.

#Q: How much should I charge for my vacation rental's security deposit?
A: Typical security deposits are around $200 or 10% of the total weekly rental rate, whichever is greater. However, the amount of the security deposit is entirely up to the homeowner.

#Q: When I rent my home for just a weekend, my security deposit is almost as much as the total rental. How can I prevent my deposit from being a barrier?
A: The best way to ensure that your security deposit does not become a barrier for nightly bookings is to do a pre-authorization on the renter's credit card. This way you are protected in the event of damage, but you are simply putting a hold on this money instead of charging the guest.

#Q: What deposit information should I include in my rental agreement?
A: Your rental agreement should reiterate the amount required for the security deposit, your deadline for receiving the security deposit and signed contract, your cancellation policies, and your refund policies, including when they can expect the refund if no damage has occurred. (Please note that you are not entitled to keep a security deposit in the event of a cancellation. However, you might be entitled to keep a reservation deposit depending on the wording of your contract.) You should also outline what would be considered a violation and which types of violations would result in partial or total loss of deposit refund. Click here for a link to our Sample Rental Agreements.

#Q: How much time should I give my renters to pay their deposit after I send them the rental agreement?
A: We typically advise owners to not charge a security deposit until you receive a signed rental agreement. Some owners that accept credit cards require a turnaround within 24 hours, but it is polite to give some leeway, if for example, you send the rental agreement on Friday and your guests can't get to a fax machine until Monday. If you allow your guests to pay their security deposit by check, many owners allow three to five business days.

#Q: I submitted my rental agreement to my guest and requested a security deposit. Should I mark my calendar as booked?
A: It is probably better to not update your calendar to show dates as booked until you receive a signed rental agreement AND the deposit has been received and/or cashed. It is fine to continue to accept inquiries for those dates, but you should be up front with those potential guests and let them know you have a pending booking. Keep them posted as to whether the booking is confirmed (with a signed rental agreement and receipt of security deposit) or if you end up with an opening.

#Q: What is a typical cancellation policy when it comes to deposits?
A: Most states prohibit owners and landlords from keeping security deposits without just cause, and just cause does NOT include cancellations. Security deposits are collected to protect you in the event of damage, and in order to keep it, you are required to present receipts for the repair or replacement of damaged items. Some owners require a reservation deposit to secure a booking, and this amount is then put towards the total rental fee. A reservation deposit may be nonrefundable depending on your rental agreement, and as it gets closer to the arrival date, you should impose higher penalties for cancellations. However, if you end up rebooking those dates, it is good practice to refund the reservation deposit and any other payments, minus a cancellation fee. These guests could be so appreciative that they might rebook sometime in the future.

#Q: What if my renter cancels their reservation after I've already charged their deposit?
A: Sometimes you can run into a situation where a renter will cancel their booking just days after submitting the deposit. Generally it's best to honor this cancellation and refund the money as soon as possible. (Note: if you have not received the signed rental agreement, you may be legally required to issue a refund.) It is, however, reasonable to withhold a portion for processing the reservation and credit card. Just be sure your cancellation penalty is clearly spelled out in your rental rules.

Caution: You should NEVER send money back until the funds have cleared your bank. Although it is unlikely, you would not want to be fooled by someone who has sent a bad check. If the original check turned out to be fraudulent but you already sent a refund check to this would-be renter, you could be out the money.

#Q: What if the renters' security deposit check bounces?
A: A bounced check could be a sign of trouble. First, talk to the renter to see if there was some kind of mix-up, and give them the option to either overnight another check or send another form of secure payment. If the second attempt does not work, you should consider this a sign to not rent to this person.

#Q: How do I handle the deposit for bookings made far in advance?
A: If you receive a booking for far-in-advance dates, you should require the deposit right away, just as you would with any other booking. However, you may want to bump up the rest of your payment schedule, perhaps requiring half the balance 60 to 90 days out and the final payment 30 to 60 days out. In the event of a cancellation, you would still have a fair amount of time to rebook.

#Q: How do I know if my property or belongings have been broken or damaged?
A: If you do not live near your vacation home, your housekeeper or property manager is really the key for determining whether there has been any damage to your property. This person should be visiting and checking on your home before and after every guest's stay, so he/she should have a clear idea of when damage might have occurred and who would be responsible.

One of the best practices is to require your guests to complete an inspection of the property upon arrival so that they can report anything broken or damaged. That way, if damage is discovered after checkout that was not initially reported, you have more cause to believe that those guests were likely responsible.

#Q: When can I withhold money from the security deposit?
A: The security deposit is never meant to be used as a way to make additional money from your renters. Your home will always have some normal wear and tear, and you should accept the fact that things will sometimes break. However, if you, your housekeeper, or your property manager find damage at the property or discover a violation that was outlined in the rental agreement, it is acceptable to withhold all or part of the security deposit. Be sure to hold on to any receipts associated with the repair or replacement of the item. And remember, you should never return a deposit until someone has fully inspected the property, and this should always be done before the next guest checks in.

#Q: What if I discover damage after I have already returned the security deposit?
A: Trying to collect money for damages after you have already returned a deposit might be more trouble than it's worth. Furthermore, it could be difficult to prove who was at fault. Let this serve as a good learning experience as to why you should not refund any money until you have completed a thorough inspection of your property.

#Q: How do I know what is considered minor vs. major damage? When should I charge for damage and when should I just let it go?
A: When you're running a vacation rental business, you have to expect some wear and tear and realize that things will get broken and things will need to be replaced. If a guest breaks a $20 iron, he/she may go out and replace it without even telling you, and that's fine because it saves you and your housekeeper the trouble. If not, you might just chalk it up to a cost of doing business and let it go. Accidents will happen, and sometimes it's better to keep the goodwill with your guests rather than withholding their security deposit.

If, however, you feel a problem was due to negligence or someone deliberately not following the rules in your rental agreement, and it will cost you a greater amount of money (perhaps $100 or more), it might be worth addressing with your guests. For example, if your heater or A/C breaks, you might not necessarily blame it on your guests. But, if you found out that your guests turned off the heat during cold weather and the pipes froze, that might be something you charge for. Your last resort could be seeking a resolution from small claims court.

#Q: What kind of proof do I need to withhold some or all of the security deposit?

A: If you plan to keep all or part of the security deposit, you should keep detailed records and hold on to any receipts associated with the repair or replacement of the damaged item. For example, if your housekeeper required extra time to clean, hold on to the additional invoice. Or if you had to replace your toaster, keep copies of the receipt.

#Q: How much money can I withhold if I find damage?
A: You are only entitled to the keep the amount that it cost you to repair or replace the damaged item(s). You should not keep additional money for the time and effort it might have taken to address the problem.

#Q: What do I do if my renters break something that cost more than I charged for the security deposit?
A: Your first step when any damage occurs is to take pictures and compile evidence of the damage, along with quotes and/or receipts for the repairs or replacement. In the unfortunate event that your damage costs more than the security deposit amount, you have a few different options. First, you can absorb the cost yourself, if for example, the excess damage is a fairly nominal amount ($50 or so). Secondly, you can attempt to recover the money from the renter by working with them directly. As a last resort, if the renter is unwilling to pay the excess damage, you have the right to take legal action. Depending on the extent of the damage and the state in which you reside and your renters reside, you may be able to fight it in small claims court. We recommend consulting an attorney if you choose to go this route.

#Q: What if a renter is disputing the claim that they caused the damage?
A: If a renter claims that the damage was not caused by them, it is fair to listen to their side of the argument. However, if your housekeeper is confident in the fact that the damage was caused by this particular renter, and you have been working with him/her for a long time with no reason not to trust them, it is acceptable to explain this to your guests and rely on your housekeeper's opinion. Your guests should understand and respect your relationship with your staff. This is yet another reason why a clear check-in policy is recommended.

#Q: What if my housekeeper thinks that my renters smoked on the property but is unable to find any evidence?
A: Proving that renters have smoked in your home can be difficult. What if, for example, they were smoking outside but left the sliding doors open? (Although it might be tempting, it is very difficult to prevent people from smoking outside your home or unit.) So, before you bring up the issue with your renters, we recommend double-checking to make sure no one had been on your property during the time frame from when your housekeeper last visited. You wouldn't want to accuse your guests of smoking in case a repairman, landscaper, or maintenance person was responsible. To prevent this type of incident from occurring again in the future, you should include the penalties in your rental agreement, your directions, and somewhere on your property or in your unit. If your rental agreement includes a clause about penalties for “any evidence” of smoking, then it should be acceptable to charge a fine. (For more information on imposing a no-smoking policy, read The specified article was not found..)

#Q: What happens if my renters dispute the charge with their credit card company?

A: While this is a rare occurrence, it is important to be prepared. Your best form of protection against disputes is a thorough rental agreement. If you have a signed rental agreement authorizing the damage deposit, and you have already charged or pre-authorized the damage deposit, you should be able to keep the full deposit. The rental agreement must be signed and dated with the same date that you charge the deposit. However, you do not have the right to hold on to the credit card number and charge for excess damage without the guest's consent.

 

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