FAQ: Security Deposits for Vacation Rentals

    Q: What is the difference between a reservation deposit and a  security deposit? money house.jpg

     

    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. 

     

     

    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.

     


    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.

     

    *Last Updated April 20, 2018

     

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