Reservation Fees Explained

When you’re buying a house you may be asked to pay a reservation fee. The amount you’ll be asked to pay and whether it’s refundable if you pull out depends on what you sign up to. Here’s everything you need to know about reservation fees.

Rebecca Gamble Consumer Journalist

What is a reservation fee when buying a property?

We’ve seen an increase in the addition of “reservation fees” that consumers are being charged across the house buying landscape in the UK so thought we’d pull together a summary guide on where, when and what is being charged, by whom and what to watch out for.

A reservation fee is traditionally an amount of money you the buyer would pay to a seller in order for them to take the property you want to buy off the market. A reservation agreement is fairly standard when you buy from a developer or a housing assocation, but there are other times when buying a property that you’ll come across reservation fees.

What are the different types of reservation fees when buying a property?

You may come across reservation fees when buying a property in the following instances:

1. When making an offer on a property (though this is rare)
2. Buying a property via the Modern Method of Auction
3. Buying a new build property
4. Buying a shared ownership property

1. Reservation fees when buying

Occasionally, a seller (well, their estate agent) will ask for a reservation fee, generally in the region of £500-£2000, once your offer has been accepted to secure the sale and take the property off the market. It’s not a commonplace practice when buying a home in the UK unless it is a new build. But we are seeing more estate agents demanding a reservation fee to buy a property.

The Property Redress Scheme has noticed an increase in this happening. Sean Hooker, head of redress at the PRS, warned that these sorts of fees will be ‘open to abuse’ if the Government does not step in and regulate agents.

He told the Telegraph in May 2024 , ‘The concerns I have are whether these fees are transparent enough, and what is a “legitimate” reason for a buyer to pull out and get this fee back. If anyone should retain the fee, it’s the seller. But I suspect some agents are taking this fee instead and that’s why we need clear guidance and rules on it. This sort of fee isn’t recognised legally because it’s technically “voluntary”, so agents can charge whatever they want.’ We agree and worry homebuyers are being exploited to line the pockets of some estate agencies.

See estate agent’s legal obligations to buyers for other issues to be aware of.

Are you required to pay a reservation fee?

So what should you do if you’re asked to pay a reservation fee? Remember, this type of reservation fee is rare and it’s advisable to avoid them if possible. So, put simply, while an estate agent can ask, you don’t have to pay it. It’s all a negotiation so you can push back against it.

You could make the point that the The Property Ombudsman for Code of Practice for Estate Agents (section 11) does not advise agents to facilitate a reservation agreement unless they are specifically instructed to do so by the buyer and seller. If they do ask for this, the agent is required to make clear in writing the circumstances under which the deposit is to be held, refunded, forfeited or used towards the purchase. In each scenario the estate agent must set out the beneficiary of the deposit and any interest accrued.

However, if having considered your options you think you have no option but to pay the reservation fee, ask for the deposit to be taken off the final purchase price you pay.

If you do go ahead and pay a reservation fee, make sure the property is actually off the market. We know of one case where a buyer paid a £1,000 reservation fee for a period of exclusivity. The seller put the property back on the market within this period and the estate agent tried to argue the buyer could not have their reservation fee refunded. The estate agent only gave it back after being presented with an email trail which proved they should return it.

For helpful advice through all the key stages of buying your home see our step-by-step guide to buying.

2. Modern Method of Auction reservation fees

Increasingly, properties are being advertised on Rightmove and Zoopla as being sold through an online ‘Modern Method of Auction’. Similar to eBay, you’ll have a fixed period of time to bid online for a property and the highest bid at the end of the auction ‘wins’, providing the property’s reserve price is met.

The buyer signs a Reservation Agreement and pays a non-refundable Reservation Fee, usually of 3 – 4.5% of the purchase price including VAT, or a minimum of £6,600.00 including VAT. This is paid to reserve the property to the buyer during the Reservation Period and is paid in addition to the purchase price.

When the auction ends, the winning bidder must pay a non-refundable reservation fee. So for example, if a property sells for the average house price of £275,000, you would pay a reservation fee of £12,375 (incl VAT) if the fee is 4.5%.

You’ll then have 56 days to complete the purchase and if you pull out, or don’t complete in time, you’ll lose your reservation fee, unless the seller agrees to an extension.

Get your conveyancing solicitor to carefully check the terms of the contract before bidding. We have heard of buyers not being refunded these reservation fees even if the delay is caused by the seller.

Plus, you’ll need to have your reservation fee ready and waiting, it can’t be part of your mortgage funds as you’ll need to pay it straight away. Read more in our guide Modern method of auction: Pitfalls for buyers.

If you can avoid buying a house through the Modern Method of Action, you should because it is heavily weighted against the buyer. You could lose thousands of pounds if your purchase falls through.

2. New build reservation fees

Reservation fees are more common place when buying a new build.

When you’re buying a new build house you’ll often need to pay a reservation fee, which typically costs from £500-£2000. This ‘reserves’ the new build home for a set period, usually 28 days. And you’ll typically need to exchange contracts at the end of this period. See our guide to new build conveyancing as there are issues specific to new build that you will want your conveyancing solicitor to look out for.

New build reservation fees go towards your purchase price and will be deducted from what you need to pay on completion.

You’ll need to sign a reservation agreement; the New Homes Quality Code specifies that a reservation agreement must include the amount of reservation fee, the property purchase price, the customer’s right to cancel within the reservation period and that there is at least a 14-day cooling-off period, during which the customer can cancel the agreement and receive a refund of the full reservation fee.

Need a conveyancing solicitor for your new build purchase? Compare quotes & ratings from quality assured conveyancing solicitors covering your area.

What to check before paying a new build reservation fee

Before paying your new build reservation fee, you should:

• Check the reservation agreement carefully before signing.
• Reservation fees are often non-refundable if the buyer fails to exchange contracts within the specified time period. So check this.
• Before paying a reservation fee, ask to see all specification details relating to the build as well as full landscape drawings and electrical plans. Visit other sites built by the developer (preferably of a similar design) to ascertain whether these properties meet your standards and requirements. See questions to ask when buying a new build.

Find more information about how the process works and what to watch out for in Buying a new build home: Essential guide.

Ready to instruct a new build conveyancing solicitor? Compare quotes & ratings from quality assured conveyancing solicitors covering your area.

3. Shared ownership reservation fees

If you’re buying a shared ownership property, you’ll usually need to pay a reservation fee of up to £500 to reserve your property. This means that no one else will be able to reserve the home for a fixed period of time.

The reservation fee will be taken off the final amount you need to pay when you complete.

But if you pull out, you won’t usually get a refund on your reservation fee. So check this before you pay.

And be aware there are pros and cons to Shared Ownership schemes to consider carefully before going ahead. They are often complicated and staircasing (i.e. buying up more shares in your property) can be expensive and quite a protracted process. Buying on the open market is always the ideal, but we realise shared ownership – where you buy a smaller share of the property and pay rent on the rest – can be a more attractive option than renting. See our guide for advice on buying and getting a shared ownership mortgage.

The argument for reservation fees

Reservation fees are commonplace in buying a new build and shared ownership property. We also think they may have a place in the normal home buying and selling process if they’re done right.

If there is one thing that everyone agrees on, it is that the home buying and selling process – at least in England and Wales – is not fit for purpose. We see gazundering, gazumping, collapsing chains, and one in three sales falling through.

At HomeOwners Alliance we do believe there’s a case for reservation fees and reservation agreements in a properly regulated system. We have called for the government to bring more certainty into the process by introducing a standardised and legally binding “reservation agreement”. At the point of agreeing a price on a property – but before either side spends any money – the home buyer and seller commit to being “genuine” to proceed with the transaction, and to pay the other side £1000 if they pull out, to pay towards their costs. By putting money into the deal earlier on in the process, we’d expect to see greater commitment and fewer transactions failing.

Our proposal takes the best of other systems, in particular Scotland and the Netherlands, to create a contract that protects buyers and sellers before they start spending money. Find more information read our article Reservation agreements: an end to home buying and selling chaos.

For more advice on buying, see our step by step guide to buying a house .