The deposit bond dilemma

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Deposit Bonds

Why do you need a deposit bond? Well, let’s just say it’s insurance. Literally.

A deposit bond, also called a deposit guarantee, is an insurance policy that acts as a guarantee to the vendor that the purchaser will pay the deposit at settlement. A deposit bond acts as cash substitute. It can be used when exchanging contracts and at auctions, and—this is particularly important—when you can’t immediately produce the cash required for the upfront deposit, which as we all know is usually 10% of the property price.

But sometimes a deposit bond may not be suitable.

Some vendors, for instance, may not accept a deposit bond. This can be because they need early access to the deposit in order to secure a new home for themselves. A deposit bond, being only a guarantee, cannot be used for this purpose.

Real estate agents are typically paid their commission from the deposit, so they may tend to refuse deposit bonds because they want to get their payment early in the sale process.

If prior consent has not been granted by the vendor and stipulated in writing, using a deposit bond may be in breach of the contract terms and the buyer could be liable for extra costs that they have not been prepared for.

 

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