It is a common practice in the industry to charge a fully-refundable Vacation Rental Security Deposit from the renters. It acts as a protection to the property owner against the specified damage made to the property by the renters. It also acts as a deterrent for the renters from intentionally damaging the property.
Although it seems like a necessary part of running a business, there are many aspects of the same that you need to consider. The topmost aspect is whether to charge it or not. Other aspects include how much to charge, what to include in the damages, when to charge and when to refund. We have tried covering most of these aspects, focusing mostly on whether to charge it or not.
- The Need for Vacation Rental Security Deposit
- Considerations for Vacation Rental Security Deposit
- How to Avoid Deposit Abuse or Incorrect Refunds?
- Wrapping Up the Vacation Rental Security Deposit Suggestions
The Need for Vacation Rental Security Deposit
Below are the reasons why you should charge the Vacation Rental Security Deposit:
1. Covers Expensive Damages
No matter how good-natured and careful your guests might be, repairs of property damage will be a part of running your business. You ought not to bear these expenses out of your own pocket or it will continue to cut into your bottom line. Therefore, having a security deposit ensures that some part of the expenses will be paid for by the guests who have negligently damaged your property.
2. Induces Good Behaviour in the Renters
If the renters are aware that damages will cost them then they will be more mindful of how they treat your property. Some unintentional damages may still occur, but the renters will be more careful because ultimately, they will bear the burden of repairs and replacements.
It is good for the owners also, because undamaged property shows better than repaired property; it gives a better first impression and demonstrates that you take pride in your property.
Considerations for Vacation Rental Security Deposit
We have established that requiring a Vacation Rental Security Deposit is good business practice and benefits both renters and owners, there are a few things to take into consideration. Namely, whether to charge and how much to charge.
1. Competitiveness of The Deposits
If your competition is not charging the deposit and you are, then you might end up pricing yourself out of the market. You need to decide if that is an acceptable trade-off for your busines. It would also be prudent analyze whether the profits lost due to fewer bookings are lower than the repair expenses. If that is the case, then your answer is clear: charge the deposit. However, if your trade-off is negligible you may be safe not charging one at all.
Further, the amount of deposits also should be competitive. If, for example, the rate is in your market is $200, then charging $400 will seem unreasonable to your potential clients and may negatively affect both your bookings and your rating. You may need to research competitive properties in your area to come up with the right amount.
2. Calculation of Deposit Amount
Some owners charge a fixed amount. Although it simplifies the booking process it may not be a good fit in every circumstance. Too high and it can unreasonably exceed the booking amount; too low and it might not be enough to cover potential damages. But it prevents the hassle of calculating it for each booking and brings simplicity to the process.
Other owners charge a fixed percentage of the booking amount for damages. This leads to a proportionate deposit based solely on the amount of the booking. Expensive properties tend to have higher chances of greater damages. However, depending on how you handle the booking process, this can be a cumbersome method as the calculation needs to be done for every booking. With the advent of entirely online booking the computer does all the calculation for you, which makes it easier now than it ever has been.
Consider your options and requirements and proceed. Whatever you choose, remember that you can always adjust if the need arises.
3. Clarifying the Damages Covered by the Deposit
This is the most important step of the entire process. You need to clearly mention which damages will reduce the amount refunded to your customers. You might ignore minor damages that can easily be taken care of by your regular property upkeep process. However, damages that are not considered standard wear and tear covered by should be covered by the security deposit.
Not only does this ensure which damages are covered, it makes the renters more careful and leaves little grounds for a later dispute, a bad review, renter annoyance, or any such negative impacts.
By clearly mentioning the damages covered on the vacation rental agreement, you receive the renter’s assent to these damages at the time of signing the agreement. By signing the agreement, the renter gives you the legal right to charge him if the specified damages occur.
4. When to Charge the Deposit
It is in the best interest of the owner to charge at the time of booking and is most convenient for everyone involved. At times it is charged upon arrival, however, this can be difficult if your guests typically arrive without meeting you in-person.
Further, charging it as part of the booking ensures that the renter pays the deposit. If you leave it until the time of arrival or departure, the renter might not pay, putting you at unnecessary risk. To avoid all such hassles, making it a part of your booking process is the foolproof way of implementing the deposit.
However, those property owners who do not have an automated booking process might face an issue in charging the deposit. In such cases, credit card information can be taken at the time of reservation. The guest needs to be informed about the deposit being charged to the card. Once the deposit is confirmed, you can send the booking confirmation to your guest.
4. How to Charge the Deposit?
Choosing how and when to charge the deposit also defines when a booking is confirmed. Therefore, choosing a faster mode is recommended by industry experts. Owners also must take into consideration the fees that they will be charged for processing. Generally, owners prefer the lowest possible fee structure.
Check payments take close to 3-5 days to process, so if the booking is urgent then this would not be an appropriate method. It is appropriate in case of advance bookings. Credit card charges can be immediate or up to 48 hours, so this is more suitable for urgent bookings.
There are further two ways of accepting deposits via a credit card. The first requires two transactions: one to charge the card and one to refund the deposit. As this process involves two transactions it also, usually charges two commissions.
Instead, property owners can receive a preauthorization of the card. This implies that they may only charge the amount required for any damages, if any. This way till the time there is no damage, neither the customer is charged, nor the commission is paid.
How to Avoid Deposit Abuse or Incorrect Refunds?
It is possible that damage occurs that was not covered specifically or clearly in the renter’s agreement but was clearly due to the negligence of the renter. Of course, you will want to charge for such damage, but be aware that this can result in guest displeasure and negative reviews.
Further, in the case of simple oversight, damages done by the guest may not be immediately identified and the full vacation rental security deposit is refunded, or no charge is made in case of preauthorization.
Both situations hurt your business and should be avoided. You can devise systems for avoiding these circumstances. Some possible solutions are as follows:
1. Have A Trusted On-site Housekeeping Team
If you own multiple properties, it is not possible for you to be everywhere. You need to have a trustworthy housekeeping team to analyze the property before and after the guest has checked in. This will help you identify if any damage is done by the guest.
Further, it will also help you assess the magnitude of the damage and put a price on it. This way, you only charge your guest as much as the damage done by them and to ensure that they are not charged if they have not done any damage.
2. Conduct Property Inspection for Existing Damages
If there is any damage before the guest checks in, he should not be charged for it. Therefore, it is best to regularly inspect your property. Not only should you be aware of the damage, but you should also convey the same to the guest at the time of the booking or check-in.
This will clarify that they will not be charged for that damage and they might not be able to use a certain property feature due to such pre-existing damages. This last is a way of being honest with your guests and not baiting them into booking a better property and then offering a substandard one with respect to their expectations.
3. Legal Obligations & Timeline
Many places have a legal time limit within which you must refund a deposit or during which you can charge the guest for any damage, and not after the deadline is over. You need to verify the same from your legal advisor and convey the timeline to the guest.
This will avoid any legal action by the guest, in case you exceed the deadline, and prepare him that you can charge within a certain period. This will also ensure them by when they will receive their refund.
The clearer the terms, the lower the chances of dispute. Therefore, transparency is of the utmost importance.
Wrapping Up the Vacation Rental Security Deposit Suggestions
These some aspects of the Vacation Rental Security Deposit that you need to consider while deciding whether to implement it or not. It is not only about the amount of the deposit, but in every business decision in you must weigh more than just the bottom line. We recommend that you perform a thorough analysis and take your time to make the decision.
We hope this guide for Vacation Rental Security Deposit suggestions will help you plan your damage deposit implementation and protect your assets against property damages.
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