Deposit Bonds: How They Work When You Buy Property
When a deposit bond makes sense, what the seller must agree to, and the risks
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A deposit bond is a promise from a bond provider to pay the deposit to the seller if you do not settle. You pay the provider a fee instead of handing over the cash deposit at exchange, and you pay the full price at settlement. It suits buyers whose money is tied up in another property, in a term deposit or in super, and it is common on off-the-plan purchases where settlement may be years away.
Optimum Lawyers is a property law firm in Parramatta Square, led by principal solicitor Wisam Assi. We act on purchases, sales, settlements and transfers in every Australian state and territory.

Send us the contract before you use a deposit bond
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How a deposit bond works
- You apply to a bond provider, which checks your finances and approves a bond for a set amount and expiry date.
- The seller or their agent accepts the bond in place of a cash deposit when contracts are exchanged or signed.
- At settlement you pay the full purchase price, including the amount the bond covered.
- If you fail to settle and the seller is entitled to the deposit, the provider pays the seller and then recovers that amount from you.
The seller must agree
A seller does not have to accept a deposit bond unless the contract allows it. Many standard contracts let the seller refuse, or let them approve the provider. Check the contract, or ask the agent before you make an offer, and have the bond terms reflected in the contract before you sign.
Check the expiry date
The bond must stay in force until settlement. On an off-the-plan purchase settlement depends on when the building is finished and the plan is registered, which can be well after the date you expect. Ask what happens if settlement runs past the bond's expiry date, and whether the provider will extend it and at what cost. A lapsed bond can put you in breach of the contract.
Risks to understand
- You still owe the full price. A bond is not a loan for the deposit. You need the full amount at settlement.
- You remain liable if you default. The provider recovers from you whatever it pays the seller, and the seller may still claim damages.
- Fees are not refundable in most cases, even if the purchase does not go ahead.
- Finance can change. If your loan approval or valuation changes before an off-the-plan settlement, you may be short of funds.
Deposit bonds when selling
If a buyer offers a deposit bond, check who the provider is, the bond amount, the expiry date and that it is made out in the right names. Ask your lawyer to confirm the contract allows you to call on it if the buyer defaults.
Buying in another state
Deposit rules differ between states. In Victoria the deposit is usually held until the Section 27 conditions are met, and in Western Australia the Offer and Acceptance sets the deposit terms. See interstate conveyancing and buying off the plan.
What clients say
“He represented me through a time-sensitive property purchase and was exceptional from start to finish.”
Jarrod Oliver, Google review
Questions about deposit bonds
Does a seller have to accept a deposit bond?
No, not unless the contract allows it. Check the contract or ask the agent before you make an offer.
Is a deposit bond the same as a loan?
No. The provider only pays if you default, and then recovers the money from you. You still pay the full price at settlement.
What happens if my deposit bond expires before settlement?
You may be in breach of the contract. Ask the provider about extensions before you rely on a bond for an off-the-plan purchase.
Can I use a deposit bond with my cooling-off rights?
Usually yes, but any amount payable to end a contract during cooling-off still applies. Read the contract terms.
Related: Contract of sale review | Sunset clauses | Property lawyers
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