Maybe I'm just thick headed. I still don't understand why LLs go thru the exercise of a holding contract and fee. Can someone give me a real answer?

If they want it, and you want them, why not just sign the lease?

Is this a profit center, bringing in more money than a standard lease arrangement?

Why do they pay you money if they're not sure they want the home?

Why not take their money, sign the lease, then give keys when the home becomes vacant/ready?

Are you doing this with vacant homes? Holding while not bringing in rent?

Doesn't this mess with Fair Housing Laws?

How many actually come thru and rent the home?

How many turn into battles for refunds?

Our system: it ain't rented til it's rented. It's rented when we have the signed lease and a deposit in hand. Until then it's first come, first served.

I started taking holding deposits while I go through my normal screening procedure. It says you got the apartment and we'll sign the lease on Friday. If you don't show I keep your money, If you lied on the application you get the deposit back within 30 days.

My holding fee has saved me on two occasions. First, here's how it works.

They pay me an amount equal to the security deposit. This is non-refunable unless I am unable to grant possession by the time / date stated on the fee agreement. If tenant backs out for ANY reason, or fails to transfer utilities, or fails to pay the full first month's rent and pet fees, or I find something in the meantime that shows their application was a "non-truthitude (i.e. LIE), I keep the money...bye, bye.

My holding fee agreement allows me to continue showing the unit until the day the lease is signed. The only thing I am promising to do is not grant possession to anyone else for up to 14 days.

If I sign a lease before having all money and granting possession, it muddies up the water and could result in need for eviction. This is what my lawyer says. He is the head of the most successful LL/tenant firm in SW Missouri. I figure he knows his biz.

I hold for a maximum of 2 weeks, and these folks do not get my $99 move-in special. That special is for folks who are ready to rent today.

I don't have to use the holding fee form as much as I used to because most folks will pay the $99 plus all deposits and start a lease immediately. It's cheap enough to overlap the last month of their current lease.

But...I did have one who just backed out once. Found another place she liked more. I kept the money, no battle. The second one I double checked his application I started doing this since sometimes recently filed evictions take 3 - 5 business days to show up on the court website, and other times the current LL drags his feet and doesn't file until after the tenny starts looking. The day I was due to sign the lease, I found his eviction record from his current residence...which had given him a good recommendation. So...two liars caught in one fell swoop. Of course he tried to say it was unfair that I kept the fee, but I told him to read the copy of the holding agreement. Done deal.

When they ask during the showing, "So how does this work?", I explain to them the following.

With your completed application, we collect 50% of the S.D. as a holding fee. This holds the place for you while the screening is completed. Just because someone fills out an application, it does not mean they are approved.

I further explain to them, if your application is approved, the holding fee rolls over and becomes part of your overall S.D. at lease signing.

If you are not approved, it is returned to you minus $50 for the fees that are incurred during the screening.

If for some reason you ARE approved for the apartment and you elect not to take it, the holding fee is forfeited in full for our time having the apartment off the market.

Do I continue to show the unit during this period, YOU BET I DO!! I do explain to the prospects that there is an application on the apartment, but that doesn't mean the people are approved.

(This part I don't tell the tenants.) If the first people are approved, but I like the 2nd people better, I go with the first people. I just do it, because I don't want a discrimination issue ever, and they were there first. Too bad for me.

They all understand the holding fee as best as I can explain it. I make it very clear and sometimes they want more clarification, so I go through the whole thing again.

I've made at least a $1,000 in the last year from this holding fee, people LOVING the apartment and bailing when it comes time to sign the lease.

I would NEVER sign a lease before a place was totally vacant. That would be one area where I would be willing to slow down my business a little bit as a result. Too many variables with the vacating tenant.

My holding fee method works for me, all of my incoming tenants have been through it and have went for it each time.

I guess to more directly answer your question, Why a holding fee?

Brad20K,

This is a great post mainly because I can see both sides of the coin here.

I use a $100.00 holding fee to get applicants to put their money where their mouth is. Money is the only thing that gets people attention and sometimes the holding fee is only way I know they have zeroed in my place instead of someone else's. I will return the holding if I reject their application.

To me, a holding fee and Earnest Money is the same thing,..it forces the person making claims (or offers to rent or buy) to think about what are doing and there is a price to be paid if the applicant is just talking a bunch of BS,..which many of them do.

With College Rentals, lease are often signed 10 months before the tenants move in.

Videns idea of a holding fee is a good one, in many markets the price is discounted if not rented, which is often a sign of despiration or over charging.

I do what Wallace does, basically. Holding fee is just so that I will stop marketing it BRIEFLY until they sign the Lease, which I then provide. Some want to put down the holding deposit very quickly so no one else gets it. I will take that if the prospect is very good. I don't keep it if I don't want them after screening everything; I will return it, assuming it has been a very short window.

I don't charge holding fee unless the prospect request us to hold the place for him/her.

I take in the application forms with $30 fee, and start process them. Find the best one I like, then approach the prospect with a lease.

If a prospect asks me to hold the place, I may do it with the holding fee equal to the rent of the holding period, no more than 2 weeks. If I don't like the prospect, I will not take a holding fee and just say we will rent to the first qualified prospect.

To lock them in if they have part of the money. Many renters don't have four digits sitting around to rent something. They need to be able to lock it in with that weeks paycheck.

If I don't, they may rent something else

Ya, I may lose a week or two rent, but it's a guaranteed thing. A bird in the hand is worth two in the bush.

If they are paid up till May 31st at their current home, they need to lock in a place before May 31. Most don't seem to want to pay double rent, they don't want to start paying for mine until April 1st. Not really my problem, but it is my vacancy if they won't rent my unit because of that reason.

If they pay a $500 holding fee on May 20th, I'm good either way. If they don't move in, I keep the $500. If they do move in, I've got my unit filled, and it only costs me 1/3 months rent, which I may not have gotten anyways.

Possession.

My thinking is with Sid.

In addition, I mostly do holding fees on units that are currently occupied so that if for some reason the old tenant fails to move out I don't have a lease on a property I can't deliever. Not had this situation. Sometimes I'll do it if they only have part of move in money and I don't have a better applicant.

I also have started making a small part of the fee refundable so they get something back.

Steve - Sometimes I wonder if you ARE JK! I don't think it will be a problem w/the new tenants anyway. If it is, I would likely just give it back and not fight it, just move on and rent the place to someone else. I've spent enough time in court to last me awhile.

Brad 20k,

As a relatively new LL I'm not entirely sure what a holding fee is. To date I have applicants fill out an app and submit $35 app fee. If everything checks out I sign a lease and collect a security deposit. On move in day I then collect the first months rent. Is there a better way I should be doing this?

Thanks,

Thanks for the replies! But I'm still not sold.

How much holding fee?

Compare holding fee income to the lost rent for the holding period?

When they have the money, we sign. Done. No fiddling. No misinterpretations. No judges. No "what ifs".

Most come up with the money when there is a real lease to sign. We start the rent timeclock that day.

Reading between the lines, I sense lost rent. Waiting 2 weeks for just $100?

Applicant needs a lot of money just to apply. Turning away good applicants because they don't have cash today but WILL have it on Payday.

Here's why we do it... Most of our unit are lower-to-mid-level rentals in a smaller town. People don't have a lot of savings and tend to live paycheck-to-paycheck. Sometimes, those people will be able to come up with either the first month OR the S/D, but not both right away. They may need to wait a bit to come up with the full move-in amount. I won't "work with them" on that, but I will "hold" the unit for up to 2 weeks to make it all work -- especially to align the lease with the 1st of the month just for my own convenience.

I do this basically only when I don't have a bunch of applicants at the same time. If I had other options, then I wouldn't do it. But when they are the only one at the time and the place is going to sit vacant for a week or two anyhow if I just plain denied them, then it is worth doing.

Best case, I get my new tenant in by the 1st with full first month and S/D as planned. Worst case, they can't come up with the rest of the money, I keep the fee, and move on.

In the meantime, I will also keep talking to applicants if one comes along -- so that if a backup happens to arrive, I have them ready to go on short notice. I make the situation clear to them to not leave them hanging unfairly.

- John...

They make it through my info process (which I require before I show the place. This is basically an unsigned shorter application without SS#s)

They pass that hurdle.

So I show the place. They want it. But we still have to go through the real application process.

So I take a HOLDING FEE to take it off the market until they supply all necessary info. This is 1/2 the Security Deposit.

IF they back out, they lose. If I reject them, after application examination, they get it back.