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Conveyancing: What is a deposit bond?

Purchasers often want to pay the deposit at exchange by way of a deposit bond (or deposit guarantee).  A deposit bond can be useful as it acts as a substitute to cash and is a guarantee of the deposit payment.  Many buyers of property do not want to free up cash by selling shares or breaking term deposits and if they can meet the criteria for a deposit bond (and it is accepted by the Vendor) it represents a viable alternative to paying cash.

deposit bond

A deposit bond may also be used for only part of the deposit, that is, a combination of a cash deposit and a deposit bond may suit the needs of a purchaser of property.

Institutions offering deposit bonds typically offer a short term deposit bond (for settlement terms of up to 6 months) and long term deposit bond for settlement terms of more than 6 months up to a defined time.  All deposit bonds include an expiration date.  Many buyers of off the plan properties or vacant land find this a suitable alternative given the longer settlement period.

Prospective purchasers of properties should keep this in mind as an option to a cash deposit.  Of course, depending on the terms of a Contract for Sale, it may need to be negotiated with the Vendor whether he/she will accept a deposit bond at exchange of contracts.

As always, please contact us at ClickLaw if you would like to discuss the possibility of using a deposit bond to purchase a property or whether as a Vendor it should be accepted in lieu of a cash deposit.   Of course, financial advice should also be obtained from an accredited mortgage or finance specialist.

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