You have sold your property and your funds are held in trust, now you have found the property you want to spend your future in, but you don’t have access to the much-needed funds for a deposit. It doesn’t have to be this way. There are options.
So often people are focused on the matter of selling their own property without paying specific attention to what they may need soon. For example, once you have sold your property you are psychologically motivated and programmed to look at the next step – your next property.
What if you have found the right property but were unable to purchase it because your funds are tied up until settlement? No problem… you could get a deposit bond to cover the 10% deposit and shortfall needed.
But… not everyone likes a deposit bond. Many vendors or the legal teams will not accept them as it does not allow them to access the money before settlement and ‘nothing is as good as cash’. With deposit bonds most parties don’t have access to these funds like when cash sits in a Trust Account e.g., the agents for commissions, Administrators (mortgagee in possession) can take fees as required etc.
Deposit Bonds are a tool for the arsenal of getting a property deal done. However, I don’t like using them. If two offers for a property are made one with cash and the other with a deposit bond, I can assure you the cash offer always wins. It provides certainty with no other third-party potential complications.
A remedy to the dilemma is to seek a release of the deposit funds when your property is sold. This was you have funds to release to another Trust Account for the purchase of your property. Such releases are usually conditionally so that money released is always backed by an asset and not being squandered. The person releasing the funds to you still has a risk until their transaction concludes. E.g. What if you pass away before the settlement it then becomes an issue retrieving the funds from your estate etc
If you have funds invested and they can only be released at the maturity date, then a deposit bond may be a good stop-gap or solution to acquire the property until you can get funds liquidated.
My negotiation strategies and offers are predicated wherever possible on having the ten per cent or five per cent deposit as cash ready to transfer immediately.
Using a deposit bond or even a lesser deposit amount is always less attractive than having a full ten per cent deposit in cash. When offers are made unconditionally with a full deposit in cash your attractiveness has increased tenfold, it provides certainty and comfort to the vendor of the property you are purchasing from and gives the agent a solid basis to tender your offer and work it for acceptance with the owner.
Preparation is key, knowing the outcome you want when purchasing a property and having yourself positioned in the best way possible to succeed in the transaction. In my view, this is with a cash deposit of ten per cent and with no Deposit Bond. This can be achieved by communicating with your solicitor about having a deposit released early if you have sold your home.
There is a time and place for a Deposit Bond but typically not in fast or complicated transactions. It creates another ‘layer’ and this does not provide the same level of certainty. I have found that deposit bonds have always led to a form of ‘tug-of-war’ about whether they are totally acceptable… they are never preferred.
See the links below for more information on Deposit Bonds.
Deposit Bonds Australia – Terms & Fee Calculator
If you require professional representation in your property negotiations or a Done For You acquisition service then call Gary on 0425 232 115
