What is a deposit bond?
A deposit bond is an alternative way of paying a deposit when
you purchase a property and usually costs around 1% of the purchase
price. It is a document which guarantees payment of the 10% deposit
on settlement or default giving the vendor security. No cash is
provided by the purchaser on exchange, rather the full purchase
price is paid at settlement. If circumstances arise where the
deposit would be forfeited, the insurance company pays the deposit
to the vendor and then seeks payment from the purchaser for the
amount paid.
It is important to understand that a deposit bond does not mean
the insurance company pays the deposit if it is forfeited, it
simply guarantees payment to the vendor. The purchaser will then
need to pay the deposit back to the insurance company. The
purchaser is still liable for all other costs under the contract
due to their default.
