Q: I'd like to buy a property off-plan. Why do I have to pay a reservation fee as well as a deposit when purchasing in a new development?
A: Most developers that are selling off-plan properties will require a reservation fee from the buyer. This is usually the minimum requirement to allow you to secure your selected unit(s). With every development, there should be a written reservation agreement that outlines what amount you are required to pay in reservation fees, how this will be used by the developer, and outlining the remaining payment process.
Before entering into any agreement with a developer be sure to read the terms carefully and ask any questions you have about the agreement to the developer directly, the agent you are buying through, or to your solicitor - in particular whether the reservation fee is refundable or non-refundable, or if there are any deductible expenses that can be taken from this fee should you wish to pull out of the sale or do not progress in a specified time frame.
"Payment of a reservation fee by the buyer to a developer secures the property for the buyer for a certain period of time, which is often stipulated as 28 days" - Fiona McNulty (Homes & Property).
Once a reservation fee is paid, the developer will take the unit(s) off the market and they will not be able to be purchased by any other investor unless the contracts are not agreed and the sale doesn't progress.
Once the unit(s) have been reserved and the reservation fee paid, you will start the formal buying process. It's quite usual for a developer to also ask for a deposit alongside the reservation fee for their development. This is done for a number of reasons in off-plan property, though mainly this is to allow the developer to gain enough funds to progress with the site build. Many developers will ask for small amounts for their deposit - usually between 10 and 30%.
Deposited funds will usually be paid to the agent you are purchasing through, or to the developers solicitors and often these funds are kept until they are released to the developer before the completion of your sale.
If this is the case, ensure that the developer is registered with a home warranty provider, such as the NHBC, which provides cover in case the developer becomes insolvent before completion, therefore protecting your deposit,