A deposit bond is a policy document used as a substitute for the cash deposit buyers need when buying property, and can be issued for all or part of the deposit amount required. The policy document tells the sellers that the insurance company will pay the deposit – up to 10% of the purchase price – in any circumstance where the deposit would ordinarily be forfeited.
No money actually changes hands under the deposit bond. Instead, all purchase funds are paid at settlement. In the ordinary course of events, settlement takes place, the purchase price is pain in full and the deposit bond simply lapses.
How does this help a seller?
Deposit bonds can speed up the process of a buyer signing a contract as well as help secure the highest bidder at auctions. It also helps facilitate the sale of a property where the buyer may otherwise be unable o raise the deposit in time.