With today’s tight inventory of homes (only 584 homes on the market this past week) and lack of building sites due to recently delayed recording of plats, buyers and builders are resorting to reservations for future home sites and, in some cases, even for improved property.   A reservation is like a promise and like all promises, some are kept and some are not.  A reservation shows intent but it is a non-binding agreement, more like a verbal promise than a true commitment.  A ‘reservation’ is used when a developer is unable to enter into a contract with a prospective lot purchaser until the lots are legally created with an MOA  recorded plat and a public offering statement is provided to a buyer.  However, some buyers, who are anxious for a particular lot will enter into a ‘reservation’ that will allow them certain preferences upon the completion and marketing of the property.

    The reservation is accompanied by a deposit which may be withdrawn at any time until the developer and depositor (prospective purchaser) have entered into an actual purchase and sale agreement, and the potential buyer has had the required 15 days to review the public offering statement.  A reservation does not warrant or guarantee any time frame when the lot will be available for sale or that the lot will be of any particular size or configuration, although the reservation is usually accompanied by a preliminary plat which generally defines lot lines and square footage.   The depositor’s sole recourse is to withdraw the deposit by giving a written request to the developer. A reservation does not need to include a price but it may do so if the developer is willing to commit to an actual purchase price prior to receiving his final costs and MOA approval.  The developer and depositor may also put a time frame on the lot reservation.  It is not, under any circumstances, an agreement to purchase or convey real property. The money deposit is held by the developer or if a real estate broker has facilitated the transaction it can be held in the broker’s non-interest bearing trust account.  Regardless of where the deposit is held, it is refundable to the depositor.

    A reservation can also be accepted by a builder from a buyer who wishes to have a new home built on a legally recorded lot.  This scenario usually occurs when the builder and buyer agree on a specific lot but the home plan and features are not finalized.  This may occur when a buyer requests several revisions to a plan and specialty items that the builder will need to price out with subcontractors.  Under this scenario, a builder may accept a refundable reservation until he is able to present the buyer with a specific set of plans, allowances and a final price for the home.  However, once an agreed upon price has the approval of both buyer and seller, the reservation is abandoned and a purchase and sale agreement is consummated. 

    Reservations that go on for long periods of time can be disappointing for the depositor.  A lot line can get moved, a new easement created and a previously discussed price can turn into a promise not kept.  From a developer or builder’s perspective, it is a good vehicle to demonstrate interest to their lender and whether or not their product has market viability and potential absorption.  The benefit to the depositor allows him to do some long term planning for a new home or home site while at the same time keeping his options open for other opportunities.  It is rare for a major change to a preliminary plat to occur and so there is a certain amount of assurances that the depositor will likely get what he has been ‘promised’.