VRS151 – The Case For Abandoning Vacation Rental Damage Deposits

This episode might trigger some argument and I think that’s a good thing. It’s a discussion that’s populated forums across the the VR world since the business really began and as we move into the mainstream of tourism accommodation we might need to revisit our practices.

Why do we insist on punishing 98% of our guests for what we anticipate the 2% might do.

On the one hand are owners who will argue their case for damage deposits thoroughly and will never back off on insisting they are covered for potential damage. Then there are those who trust in their guest’s honesty and transparency and have never taken a deposit.

I’m in the second camp.

Here’s some of our statistics.

Over 10 years of managing 6 of my own properties we charged one guest for a broken hot tub cover…and even that was because I got personally offended because the guest rubbed me up the wrong way. In retrospect I would probably have let that one go as well given the stress and anxiety it caused.

That is not to say it was the only issue we dealt with. There were broken beds; stains on mattresses and linens; broken knobs on appliances; cracked toilet seats; disappearing towels; tears in sheets

In an average year we’d be managing 180 rental periods. You can do the math here.

Similarly, in our rental management company we have minimal damage reports.

In an average summer we’ll check out 1500 families, and this year we dealt with a handful of significant damage issues.

As an agency we play a different role since we have two distinct groups of clients – our rental guests and owners.   A damage report from an owner triggers a robust investigation that involves examining photographic and video evidence, and then mediating between the two parties.

It’s a lengthy process and one we’d rather avoid, so we’ll often pay the owner the amount of damage claimed and save ourselves the considerable cost in time and stress involved in pursuing it.

This doesn’t mean we allow our guests to “get away with damaging property” as one owner put it. Rather, we err on the side of tolerance and understanding that the majority of our issues are purely accidental, and a result of guests being in unfamiliar surroundings.

In this episode I talk about the range of damage issues we’ve dealt with over the last 15 years; what owners can do to protect themselves and the insurance alternatives that are available.

I cover:

  • The pros and cons for collecting damage deposits
  • Whether having ‘skin in the game’ makes a guest more careful
  • Damage versus wear and tear, or when the leather finally splits
  • How to combat being offended by the actions of guests
  • Why we can’t blame a single guest for a broken bed
  • Cost benefits of self-insuring and other insurance options
  • 5 tips for reducing the risk of damage to your home

Rental Guardian

CSA Damage Protection

About the author

Heather Bayer

  • Thank you Heather. I use CSA and it has been a real nice fit for my business.

  • Aloha Heather. I too have not used damage deposits for a long time. It is another sense that you are welcoming a guest into your home, as a guest vs. client. I find they *typically* take better care. Mahalo – Matt

  • Gary Troy Miller

    Best podcast ever! This is an important conversation and as I get more experience as VR business owner I have had more questions than answers until now. I could not agree more with you more on this subject an I am getting rid of the damage deposit, it makes no sense. It’s more of an inconvenience to the guests and really to the owners themselves to be responsible for that money.

    Things are going to break from time to time, stuff is going to get broken that is the nature of the business and I think every homeowner should set aside some money for those repairs. ( how much money is another conversation ) However, if the guest damaged something on my property a security deposit is not going to make things any better. I’m still going to have to have the painful conversation of figuring out what happened who’s at fault and who is going to pay for that damage. In the end it’s the owner’s word against the guest and I think nine times out of 10 the owner is going to have to pay for whatever damage is done and less you can prove otherwise. I’d like to believe that there are still honest people out there I know for myself if I damage something I would own up to it.

    Could you imagine going into a restaurant and the owners asking you for a deposit in case you broke dishes upfront? I don’t think that restaurant would be in business for very long. I think it’s one of those things you have to take case-by-case and not to paint every rental experience with the same brush.

    Thanks again Heather for an amazing podcast I learned a lot I hope others did too.

  • Thanks Terry – I just came back from VRMA conference and spent a lot of time with the Rental Guardian team. They offer a variety of policies to offer guests including ‘cancel for any reason’ as well as damage protection. They could be a good fit for owners too.

  • That is such a good point Matt. I too have found more respect from guests because they feel we trust them. Of course there are going to be bad apples but that’s just a part of the business and being professional about running it.

  • Thank you for sharing your thoughts Gary and they are particularly relevant from a new owner such as yourself. You have gone into the business with a guest-centric attitude from the outset which has no doubt contributed to your out-of-the-gate success. Not everyone is going to agree of course but it’s great to hear your take on it.

  • Hi Heather,

    Another company making a lot of noise is Red Sky Travel Insurance. I talked to the owner of one of the big agencies on Anna Maria Island this summer with over 200 properties and they had just switched from CSA to Red Sky. I see another trend is to sell the cancellation insurance but stop offering damage insurance and instead charge a damage fee per booking say $50.00, $75.00, $100.00 or whatever put it in a escrow fund, build the fund and fund damage claims through the escrow account.

  • That is what we do with our Accidental Damage Protection Plan by charging a non-refundable fee. In the 6 years since we’ve been doing this we’ve had no evidence of guests taking advantage of having essentially paid for any damage up front. I mentioned it in the podcast talking about self-insuring

  • I did catch that in the podcast but I also heard your referral to CSA. Is your relationship with CSA cancellation insurance only?

  • We used to work with Travel Guard for guest travel insurance – have not had any dealings with CSA since they don’t cover Canadian rentals as far as I know

  • cindiSue

    I don’t feel like giving a deposit is a punishment, at least in my case. My renters are paying from $3000-$10000 for their stay, so having another $400 out of pocket for a short time is not a big deal. I have gone to this smaller deposit over the years though ($400 on a million dollar home is not very much.) I also sometimes use Owner Reservations which doesn’t actually collect the funds, but just reserves it on their credit card in case there are damages. My guests don’t seem to care either way. But I agree that some deposits are much too high, sometimes thousands of dollars for a home like mine.

    I have almost never charged anything against the deposit. The reasons I collect it are: 1) To encourage people to do basic cleaning before they leave (ie not leave 30 sets of towels to be laundered, or every pan and dish unwashed.) 2) As a deterrent to having parties or making too much noise, since that results in loss of the deposit. It have found it works for me in these cases.

    You say you don’t believe in “skin in the game” because people don’t do damage on purpose. Agreed. But I do believe, and have seen for myself, that it affects their behavior in terms of whether they follow the house rules and how clean they leave the place.

    And while you would never pay a deposit at a resort, they do have your credit card number and you give them permission when you check in to charge damages against that card. So it’s basically the same thing. They also have attorneys to go after you if you don’t pay. And if you stiff a hotel chain, you’ve burned a bridge and won’t be able to stay at that chain again. That isn’t the same for an individual owner.

    FYI I experimented a little with asking whether people would rather pay a non-refundable $50 or a refundable $500, and they all preferred the refundable deposit.

    I agree with a lot of what you said at the end. Make it clear what guests should do when they leave, don’t make it too onerous, don’t take it personally. I used to have cleaners who would call me indignant all the time, and now I have cleaners who just take care of it and don’t tell me, and the later is so much less stressful! I would never clean my own house, because I really don’t want to know…

  • David Royston

    I fail to see where the punishment is ?????

    When I let a complete stranger have the free run of my property, having invested heavily in it, what’s wrong with asking them for some sort of guarantee?

    If I did not, would it not sound as if the place had nothing valuable in it?

    As far as replacing damage deposits by insurance policies, well you can only still believe in such a solution if you have never tried to claim on an insurance recently.

    Insurances are holding back payments for ever single possible reason. In my experience, they even try to fend off any claim that is perfectly legitimate under the policy. Now if the renter acts in bad faith and denies any damage, guess who the insurer will side by …

    Having a nice pile of 100 dollar bills in my pocket is a very efficient way of making sure that the renter is careful.

    I have only claimed 2 deposits, both from French tourists In both cases no other system would have worked, I did it reluctantly, but both sets of guests had stolen, damaged equipment, broken several house rules and the law.

    I never claim any money off the deposit for small breakage.

    At one point you have to draw the line as to what you will never accept. Asking for no deposit is not an option.

  • Thanks Terry – I just came back from VRMA conference and spent a lot of time with the Rental Guardian team. They offer a variety of policies to offer guests including ‘cancel for any reason’ as well as damage protection. They could be a good fit for owners too.

  • Having rented for over 6 years now and hosted about 800+ people per year in our homes I cannot tell you how the Damage Waiver Fee has saved me.

    1. Conversations with guests are street-free for both sides
    2. The Damage Fund is used for insuring ourselves so that we can easily replace items that are damaged or worn out
    3. Only 2 guests (European) had asked us for a Security Deposit option instead in over 5 years of offering this service, which isn’t a problem.
    4. We save tons of bank fees by avoiding charges for receiving and refunding deposits.
    5. We’ve only had 1 guest that was a nightmare with soap in the pool, broken glass in the pool and on deck, etc…
    6. Our screening process and branding helps us decrease the probability of having to use the Damage Waiver for bad guest behaviour.

    Can’t say enough about taking this leap and paying yourself first. As David Royston said… the insurance companies are holding back as many payments as they can. If I am the “insurance company” with my Damage Waiver Fund, I call all the shots. It’s just one more step towards independence, why pay someone else?

  • Thanks for sharing this Nancy – you make some great points, each of which makes a strong case for self-insurance. There are some great benefits of taking this route.

  • Lori

    We don’t charge a cash damage deposit. I use a rental agent to manage my rentals. They take a credit card number instead of charging a set fee. People who are not in the habit of causing damage have no problem with it and are happy to not have to dish out extra money up front. Nothing is charged on the card, the number is just held in case of damage.

    However, I had a renter who stuffed my garbage disposal with an entire roast dinner veggies and all. It was so clogged that the plumbers had to break through the wall and into the main stack of the condo association to clear the blockage, costing me $500. The person who was in there swore the drain was slow to begin with and they did not clog it. Even though her husband just said they screwed up. The plumber showed her the completely stuffed pipe with huge pieces of carrot in it. The drawback with keeping the credit card is that they reported their card as lost immediately after they found out that it was known that they caused the clog so we could not recover anything. Too bad my plumber confronted them.

    My condo was filthy from the router trying to clean out the clog and I had to clean my rugs as well. Interestingly these people who declared NO responsibility in the clog agreed to pay for the cleaning of the rug. Why would you do that if you weren’t responsible.

    As for using an insurance company, my rental agent offered that option. Problem is that unless you are there to inspect your condo when someone leaves you will never know WHO did the damage. Cleaners never report damage. We have come in to find damage including a hole in our bathroom door. It was never reported and we were left holding the bill to fix it. You can’t claim damage when you don’t know who of the last 6 renters that was in there did it. Don’t say get different cleaners because NONE of them report damage in our area. Maybe because they clean so many condos.

  • ricklewon

    You are right on the money! I really do believe we give the guest a better experience and increased future rentals when we do not require a deposit. Also, we have had no substantial damage in the last 10 years with this policy. I will admit, however that we do live on the property also, so perhaps that helps.

  • I agree 100% with cindiSue. We began renting holiday homes about 14 years ago and we did not have a damage deposit for the first 3 years. We got fed up with rude people leaving our house in a mess. From the time we instituted a modest deposit, our guests began to leave the house in a tidy state.

    Damage deposit is, perhaps, the wrong description. It is really more of a gentle persuader. In 14 years, we have made 4 or 5 deductions from the bond and only once kept a full deposit of $300 when a guest’s dog shredded the floor covering.

    We certainly expect breakages in our own house and do not charge for them. However, there are run of the mill breakages and then there are breakages brought on by stupidity and lack of respect for other people’s property. One of our owners had their granite kitchen worktop snapped in two because guests were dancing on it. That cost several thousand dollars and the bond was nowhere near enough to cover it. That, I admit, was exceptional and unusual. The fact that the guests were all doctors and surgeons puts rather a dent in the idea that you can always screen guests successfully !

    My experience accords with cindiSue – having a deposit makes guests think twice.

    I note that you cannot contract for a long term rental in Australia without paying a bond of around 4 weeks rent. I do not think Real estate agents or owners are planning to change that policy anytime soon.

    We have seen what happens in the financial world when people do not have “skin in the game”. The idea that an owner is showing a lack of trust in a customer and that the imposition of a deposit displays an unwelcoming attitude is pretty naive, I think. Why should I trust someone I have never met or have very little information about?

    No country lets a person drive a car without passing a driving test. Perhaps the industry should work towards a customer trust rating. The real estate industry runs a reporting system for bad tenants.

  • Daria Kelly Uhlig

    Nancy, I’m also highly partial to a damage fund — or damage waiver, as brokers in my market call it. Each guest pays a modest, nonrefundable fee (around $70) and in return, gets $1,000-$3,000 of accidental damage protection, depending on the broker and the program. Some brokers use actual insurance policies purchased through travel insurance companies, and others self-administer their own funds. I prefer a self-administered fund because we decide what to reimburse (we’re the owner’s agent) and so provide a higher level of protection to our owners, and over time, still accumulate a surplus that serves as an additional source of revenue.

  • I recently saw a very thoughtful TED talk on trust by Onora O’Neil https://www.ted.com/talks/onora_o_neill_what_we_don_t_understand_about_trust
    Onora makes an important point about trust with her example of why she trusts the shop where she buys her socks. She trusts them because she can take the socks back without questions asked if they do not suit. The shop is making itself vulnerable to her because it believes sufficiently in the quality of its product.

    A pair of socks, though, does not represent a great degree of vulnerability. A holiday home and its contents does. I do not see why one party to a transaction should place themselves in a very significantly vulnerable position without expecting the other party to at least make themselves partly vulnerable. It could be argued that the renter is vulnerable because he/she has handed over $2000 for rent. I would counter that by saying that the owner has handed over a home of significantly more value than the cost of the rent. The deposit is the extra bit which places the renter in a vulnerable position. It is a position of uncertainty. There would be no need for trust if we were always certain. Trust is a leap of faith and a deposit is a way of creating a little confidence for an owner to make that leap.

    It may seem trivial but it works for the same psychological reason that humans tend to pay more attention to the possibility of a small loss than a large gain.

  • Maria Rekrut

    In the 16 years of running a vacation rental in Niagara. I never have charged a damage deposit. I’ve never had damage done to my rental. I just keep their credit card on file.

  • Debbie

    When I rented my apt in Rio on VRBO I had the clients give me a pay in full before arriving either by check, or Paypal (with a credit card) I made them sign a contract stating that any damage incurred during there stay I would charge their credit card..I had my friend who was sort of like the English speaking concierge…check them out and check for damages…(we never had anything significant, so I never had to charge anyone) I also included daily maid service so she could keep me aware of all the goings on too…since this was also my second home…I had an apt bio that I emailed to all the guests so they knew how everything worked and I also kept a copy in the apt in case people forgot theirs (this was before smart phones) and it stated that this was my second home and to please respect my things. I also spoke to people extensively before I rented to them and did not ret to partiers or families with small children…My apt raised the bar on apartment rentals in Rio…I had gutted it and renovated it and decorated it in a very Balinese style except the master bath which had 200 year old antique furniture in a British Colonial Style…I paid every attention to detail, to sheets with thread counts (something new to Brasil in the early 2000’s) plush path sheets and makeup mirrors…I charged less than what you would expect and therefore was rented year round (except for when I was there) I spoke fluent Portuguese and Rio was and still is my second home….but I have since sold my place and someday want to open a boutique size B&B in Buzios and renovate to my upscale tastes…anyway that was my experience..and happy renting!

  • Revisiting your podcast after encountering a multitude of threads elsewhere of owners lamenting the challenges of calling in the damage deposit and then having it taken right out from under the owner when the guests makes a chargeback with their credit card companies. Most of them note that the generally loose and end up an angered guest, lousy reviews and even more hassles than they had planned.

    We are certainly planning to do something alternatively than taking the damage deposit. Our PM has contracted with a travel insurance company where our guests are given the the choice of paying $500 for returnable deposit (less $30 “processing fee”) or $69 for up to $3000 damage.
    One of our guests’ children decided to carve their initials in our table. Thankfully they did take the insurance and we now have a new table!