A deposit bond is a guarantee given by a provider in place of a cash deposit when purchasing a property, to guarantee to the Vendor that the deposit will be paid, generally at settlement.
The purchaser pays a fee to obtain the deposit bond (usually a percentage of the deposit bond amount) and it is then issued by a bank or other financial institution. A deposit bond is useful for purchaser(s) who do not have enough cash on hand to pay the deposit or are waiting on funds from another property sale, but want to quickly secure a property.
Where a deposit bond is used, the purchase price is paid in full at settlement (including the deposit) and the deposit bond will lapse or will be cancelled.
However, there are some disadvantages of using a deposit bond:-
- Some Vendors may not accept deposit bonds, if they are seeking an early release of the deposit.
- Fees and charges apply and may include an administration fee if the deposit guarantee is refunded.
- Can be difficult to get approval from both the provider and the Vendor.
When can you use a deposit bond?
A deposit bond is only a guarantee and not an actual exchange of money to the Vendor. A Vendor may allege breach of contract if a Purchaser uses a deposit bond instead of cash deposit or bank cheque deposit or a bank transfer.
It is essential that you notify the seller and real estate agent in writing when you submit your offer if you want to use a deposit bond.
If you require legal advice or assistance in purchasing a property, don’t hesitate to contact us on (03) 9000 5610 or email us on email@example.com.