Holding deposits sound like it might be good for potential Tenants but will it be good for Landlords?
Answer:
You are right to be concerned about issues with holding deposits. Misunderstandings and legal hassles are most often the reasons that cause problems for landlords and many landlords refuse to consider holding deposits.
However with careful consideration of issues and adequate documentation, a holding deposit can sometimes be useful in filling vacancies. If the rental market is tight, applicants may offer a holding deposit to take the rental unit off the market until the applicant’s screening and verification is complete. At other times, a holding deposit may seem appropriate when an applicant appears committed to the rental, but must make arrangements for the move-in funds. It is often, in a slow rental market, better to utilize a holding deposit rather than lower qualifying standards or reduce the rent.
As you know, a holding deposit is not a security deposit, but is to compensate the landlord for damages suffered for holding a unit off the market in the event that the applicant fails to meet screening qualifications or rescinds his/her agreement to rent the unit.
In summary, landlords must follow any laws of their states and they should use good judgment and be fair in their holding deposit policy. An applicant whose holding deposit is retained without adequate justification may well have a cause of action for damages against the landlord which can result in more time and expense than the deposit was worth.