Typically when you purchase residential or commercial property a 10% cash deposit is payable to the vendor in order to exchange on the Contract of Sale.
A deposit bond is a guarantee to the vendor that the 10% cash deposit will be paid on settlement and enables the purchaser to delay paying the deposit. It also buys
them time to settle on another property or convert assets to cash.
There is a nominal fee that is paid upfront to secure a Deposit Bond for the required deposit. 100% of the purchase price is then paid on settlement.
Deposit Bonds are underwritten by specialist insurance companies (“the guarantors”) and provides a guarantee to the vendor that the 10% deposit will be paid on
If the purchaser fails to pay the required 10% cash deposit the vendor can claim the guaranteed amount from the underwritten insurer.
The insurer will then seek recovery of the deposit amount plus costs from the purchaser.
The key benefits for using a Deposit Bond are:
A Deposit Bond is a guarantee that the cash deposit will be paid on settlement. Deposit Bonds are legal and available throughout all states and territories in
Australia and are a common practice.
There should be no reason why a vendor wouldn’t accept a Deposit Bond instead of the normal cash deposit. It is however at the discretion of the vendor if they accept the Deposit Bond in lieu of a cash deposit.
A vendor is often keen to obtain a Contract of Sale on their property and secure a deposit commitment from the purchaser which the Deposit Bond will provide.
Most “Standard” Contracts of Sale stipulates for a cash deposit to be paid. It is therefore recommended that as part of negotiations you specify that the deposit will be made via a Deposit Bond and a special condition can be inserted into the Contract of Sale.
There are 2 types of guarantees available depending on how long the settlement period is:
Short Term Guarantees – For settlement terms up to 6 months. Purchasers need to be able to
provide evidence that there will be sufficient funds available to complete the
Long Term Guarantees – For settlement terms between 6 months and 48 months (4 years). Purchasers need to own other real estate and be able to demonstrate the ability to complete the purchase.
A Deposit Bond will cost you approximately 1.2% of the guaranteed amount.
Your Finance Specialist will be able to organise a quote for you.
The Deposit Bond terminates when:
To apply for a Deposit Bond we will assist you to complete an application form and provide evidence that you will have sufficient funds to complete the purchase at settlement.
Required documentation includes:
Evidence required to show you will have sufficient funds to complete may include:
Speak to your Finance Specialist who will be able to provide you with further information regarding Deposit Bonds.