Rainey Collins Lawyers

Deposit/Bank Bonds … What Are They?

By Claire Coe, Wednesday, 3 March, 2010, Agent Care

Deposit or Bank Bonds are an alternative to paying a cash deposit on a property which maybe yet to be built or have title issued.  So what is the best way to explain this to clients?  Simply put, it is a way to enter into an agreement for sale and purchase without requiring a cash deposit while providing the vendor with certainty that the deposit would be paid if required.

Most properties with a delayed settlement require up to a 10% deposit.  A Bank or Deposit Bond is a financial guarantee provided to the vendor by a bank or other lender.  It provides a guarantee that the vendor will receive an amount equivalent to the balance of the deposit at a pre-determined future date. 

The benefit for the purchaser is that it provides an alternative to paying a cash deposit, to secure the new property.  Lenders usually charge around 5% of the deposit per annum for the service.

Of course the full purchase price must still be paid when the building is complete or title is issued!  For this reason financial lenders will have eligibility criteria.  These will include the purchaser’s overall financial position and ability to complete the purchase.

In the event that the purchaser defaults, the bank will pay the deposit to the vendor and will then pursue the purchaser for the amount along with any costs.  The bank’s right to do so will usually arise from an indemnity the purchaser signs when obtaining the bond.

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