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A reservation fee is a cost that many buyers may not expect when house hunting. If you aren’t buying a new-build property you’re unlikely to encounter one, but if you do, it’s worth understanding how it works.
It can add a significant sum to the cost of moving, and with the typical bill now approaching £18,000 in England, any extra outlay needs careful thought.
Here, Which? explains what a reservation fee covers, why you might be asked to pay one and whether it’s ever appropriate for a second-hand home.
A reservation fee is a payment that takes a property off the market. The money is usually returned to you or deducted from the purchase price when contracts are exchanged.
If the sale falls through, you’ll normally lose the fee, although this depends on the circumstances and the terms you agreed to.
The cost may be a fixed amount or a percentage of the sale price, typically ranging from a few hundred to a few thousand pounds. Even if the fee is eventually refunded, you still need the cash available upfront.
If you come across a reservation fee, it’s usually for a new-build home. Hamptons told us that this type of fee is 'common for new-builds'.
Barratt Homes says the fee typically ranges from £500 to £1,000 and is 'often deducted from the final price upon completion'. Hopkins Homes states that its fee is generally £1,000, with the property being taken off the market for 28 days.
The exact amount varies between developers and is usually listed on their websites.
Nathan Emerson, CEO of Propertymark, told Which?:
Traditionally such fees are more familiar on new-build properties in the form of a deposit, however with an ever more competitive marketplace such propositions have in some cases grown in popularity.
'It is however prudent to ensure all terms are fully understood when engaging in such a process and that you have full faith on how any such fees will be administered securely.'
In short, no. A local estate agent in East Anglia told us that such fees are rare and not something they would request when marketing a property.
Hamptons echoed this, telling us: 'We would advise against it as it can take a lot of time to-ing and fro-ing and complicates matters. This is something that consumers should consult with their solicitor.'
However, Which? became aware of a recent case where a reservation fee was requested on a second-hand home, which prompted us to look into how unusual this is.
From speaking to several agents, it’s clear that buyers should be extremely cautious if asked to pay a reservation fee on a second-hand home.
The exception is auction sales, where non-refundable reservation fees are standard. These cover listing and auctioneer charges and are usually a percentage of the final purchase price, although the percentage varies.
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Buyers remain in a relatively strong position, with more homes for sale than there are purchasers.
Asking price data from Rightmove and Zoopla shows a marginal month-on-month fall in average asking prices.
For sellers, getting the price right is more important than ever. Previous analysis has found that homes which reduce their asking price take significantly longer to sell. With Rightmove reporting that 34% of listings have already been reduced, choosing an agent who knows the local market is crucial.
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Paying a reservation fee is just one way that the process of purchasing a new-build property can be slightly different from buying a second hand home.
If you are thinking of purchasing a new-build property, check out our 9 tips for buyers.
You will find tips from experts across the property industry, including an estate agent, new-build expert and broker.
