What is a reservation fee when buying a property?

• A reservation fee is typically (£500-£2,000) to secure a property off the market for an agreed period, typically used with new build homes.
• It's paid upfront before contracts and is different from a deposit - it shows serious buyer intent to developers.
• Fees are usually non-refundable if you change your mind, but refundable if the developer fails to meet their obligations.
• The reservation agreement sets out payment terms, time limits, and exactly when you can or can't get your money back.
• If the purchase completes, your reservation fee typically gets deducted from either your deposit or final purchase price.

When you’re buying a house, particularly a new build, you may be asked to pay a reservation fee to secure the property. Reservation fees are mostly used by developers selling new build homes, where properties might still be under construction. However, you might occasionally encounter them with regular property sales, especially in competitive markets or with unique properties.

Learn more: Buying a new build vs an older home

A reservation fee is an upfront payment you make to a developer or seller to secure a property or plot once your offer has been accepted to have it taken off the market for an agreed period. Think of it as paying to ‘hold’ the property while it’s being constructed, or you’re sorting out your mortgage, legal arrangements, and other purchase details.

How is it different from a deposit?

Unlike a deposit, which forms part of your final purchase price and is paid when you exchange contracts, a reservation fee is typically paid much earlier in the process. It’s essentially a commitment fee that shows you’re serious about buying, while a deposit is part of the actual legal transaction.

How much does it cost?

Reservation fees can vary depending on the property value or developer. They typically range between £500 and £2,000. Developers of new build properties may charge a flat rate regardless of property price, while others calculate it as a percentage of the purchase price.

What does it secure for you?

Paying a reservation fee gives you exclusive rights to purchase the property for a set timeframe – this will vary depending on what you agree to. During this period, the seller cannot sell to anyone else, giving you a little breathing space.

To take the property off the market

Once you pay the reservation fee, the developer removes the property from sale, meaning they can't market it to other potential buyers. Whilst this benefits you since you’re at less risk of the purchase falling through, the developers want to lock you into the sale to recoup their investment.

Shows serious buyer intent

Asking for money upfront helps developers filter out the casual browsers from genuine buyers. If you’re willing to part with cash, you’re much more likely to follow through with the purchase. This saves developers time and resources which would have otherwise been wasted.

Protects their interests

Timing is crucial with new build properties. Construction schedules, cash flow, and project completion dates all depend on reliable sales. Reservation fees provide some financial protection if buyers pull out, compensating for the disruption and costs involved in remarketing the property.

A reservation agreement is a legal document that sets out exactly what you're paying for and what happens in different scenarios. Here's what you can expect to see:

Key terms covered:

• Reservation fee amount and payment details
• Full property description and agreed purchase price
• Length of the reservation period
• Specific conditions on when the fee is refundable or non-refundable
• Developer obligations during the reservation period
• Consequences if either party breaches the agreement
• How the fee gets deducted from your final purchase price

The agreement essentially protects both you and the developer by clearly defining everyone's responsibilities and what happens in different scenarios.

Whether you’ll be refunded the reservation fee depends totally on the terms of your agreement and why the purchase doesn’t go through.

You'll typically get your fee back if the developer fails to provide contracts on time, changes the property specifications from what was promised, or if legal issues with the property weren't disclosed upfront. You might also get a refund if your mortgage application is rejected despite providing accurate financial information.

However, you'll lose the fee if you simply change your mind about buying, find a better deal elsewhere, fail to exchange contracts within the reservation period, or if your personal circumstances change through no fault of the developer.

Once you’ve paid your reservation fee and signed your agreement, the developer will take the property off the market and the legal work will begin.

The developer should provide you with a conveyancing pack containing all the legal documents about the property, including plans, specifications, and any relevant certificates.

During your reservation period, you'll need to get your mortgage application moving if you haven't already. Most lenders will want to see the reservation agreement and property details before processing your application. You'll also need to instruct a solicitor or conveyancer to handle the legal side of your purchase.

The developer should provide draft contracts within the agreed timeframe - usually within 10-14 days. Your conveyancer will review these and raise any queries or concerns about the property or terms.

Learn more: How is new build conveyancing different?

If everything proceeds smoothly and you're ready to commit, you'll exchange contracts before your reservation period expires. At this point, your reservation fee typically gets deducted from either your deposit or the final purchase price, depending on what your agreement states.