As a property-related service provider—whether you’re a mortgage broker, conveyancer, real estate agent or solicitor—it’s important to continuously improve the services you provide.
Having a toolkit that solves your clients’ major pain points ensures that you’re able to keep offering excellent service, boost customer loyalty, repeat business and referrals.
The fierce property market has only increased competition among buyers for homes, as prices continue to increase even incrementally as the market recovers, and it can be more of a challenge for property-related service providers to differentiate themselves.
Service providers with a competitive advantage can help bridge the gap between a homebuyer and the property that’s suited to their needs.
For any property-related service provider, client trust is the core of any transaction. A deposit bond is an enabler of this trust; this starts the conversation about the steps that need to be taken for the homebuyer to attain the property they’re aiming for and allows service providers to build the relationship and dependability required to move forward.
By including deposit bonds in your professional toolkit, you can focus on your core competencies and develop additional value-adding services for your clients.
What are deposit bonds?
A deposit bond is a great solution for homebuyers that are looking to purchase, but have cash locked away in equity in a property they have sold or intend to sell.
A buyer or investor will normally have to provide a cash deposit, typically at 10% of the purchase price, when purchasing property or land. A deposit bond bridges this gap by allowing buyers to secure their home now, and then pay the deposit and the balance of the purchase prices at settlement when their funds will be available.
Deposit Assure Co-Founder and CEO Etienne Rizzo explains its mechanics with this analogy: “Think of your platinum credit card when you go to a bar. When you put down your card, the bar opens a tab for you so that you’re free to eat and drink. You consume now and pay later.
“A deposit bond is quite similar. Even if you don’t have the cash deposit right now, you can put down a deposit bond so that it acts as a guarantee for the deposit when you buy a property. At settlement, you can pay for the deposit, including the balance of the purchase price, either from the sale of your existing property or from the finance you obtain.”
This means deposit bonds offer additional planning and financial options for homebuyers, without dealing with more interest, and the professionals can focus on providing great service.
3 reasons referring partners should add deposit bonds to their professional toolkit
Ultimately, when a referring partner involves a deposit bond in their ways of working, the benefits are increased loyalty, repeat business and referrals. This solution helps referring partners solve problems, and establish and maintain trust while providing homebuyers more time and leeway to acquire the funding required to secure their property.
We’ve shortlisted three additional reasons that referring partners need to consider adding deposit bonds to their professional toolkit.
Deposit bonds solve big customer problems (and generate more referrals)
Deposit bonds can help you stay ahead of your competition by allowing you to diversify the solutions you already provide in related areas. It can encompass assisting with setting up utilities in new homes or providing quotes for general insurance and deposit bonds — not just home loans or conveyancing.
It can also generate more referrals because it’s such an appealing solution for most buyers and investors. In the current market where property prices are so high, the majority of people will typically need to sell existing properties in order to buy. So, their hands are tied by the cash locked up as equity in the property that they have sold or intend to sell in the future.
This means they don’t have the required 10% cash deposit on hand to buy a new property. A deposit bond is a great solution that ensures they can make their purchase conveniently.
Instead of waiting for the ‘right timing,’ or when they’re no longer constrained by a lack of cash and risk missing out on the property that meets their needs perfectly, they can secure their prospective property and sort out barriers to cash access for their eventual deposit payment. Additional benefits of using a deposit bond for a service provider’s customers include:
- Keeping cash close by instead of being allocated totally to one’s deposit
- Being able to secure a property quickly when they don’t have access to a 10% cash deposit yet
- Offering a cheaper and quicker alternative to borrowing money
The more problems a service provider can handle successfully, the more trust they can build with their customers, and the greater the chances they have of increasing their referrals.
2. Deposit bonds can be cost-effective for homebuyers
With increasing interest rate rises, the cost of borrowing money is also getting higher. Rates are projected to keep increasing as the Australian central bank aims to return inflation to target and will continue to employ restrictive policies in the interest of providing greater confidence that widespread price increases will return to target rates within a reasonable time.
This comes after the bank’s most aggressive tightening cycle in modern history, a hefty 400 base point increase starting May 2022, which was set to wrap up in June 2023. The risks of a more pronounced downturn in the economy persist as the RBA grapples with the balancing act of tamping down on price pressures and keeping the economy growing consistently.
RBA forecasts inflation is set to return to the top of its target range of 2-3% by mid-2025, as a substantial boost to minimum wages has led observers to project higher rates for longer.
All in all, for the foreseeable future it can cost a buyer or investor more to use their cash on hand than for them to utilise a deposit bond. In context, a deposit bond under six months can cost 1.3% of the deposit amount. But the current interest rate is approximately around 5.5 to 6%, which is what a homebuyer’s money may be offsetting in the mortgage account.
In particular, for longer settlements (which typically apply to off-the-plan properties), utilising cash for such a long period can cost more money in the long run. This is why a deposit bond can be a more financially viable option for buyers.
3. Deposit bonds are a quick and straightforward solution
As most people need to sell existing property to buy a new one, their cash is most likely locked up in equity, which can take more time for them to come up with that cash deposit.
A deposit bond is a quick and simple solution for buyers that don’t have immediate access to their 10% cash deposit. Within a tight housing market, service providers are challenged to find ways for homebuyers to acquire the property they need; aside from supplying them with the convenience of their personalised service, their offer needs to adapt to varied situations.
An offer like a FLEXI Deposit Bond enables buyers to obtain a pre-approved deposit bond that can be used to bid at multiple auctions or to have at the ready when they finally secure a property. For the service provider, the FLEXI Deposit Bond enables them to help buyers settle and start the property exchange. By settlement, the bond has already completed its purpose.
The deposit bond is the first crucial step to your client’s property buying or investment journey when they don’t have that cash deposit on hand. When setting oneself apart from the sea of other property service providers, having a versatile tool on hand in the form of a deposit bond can boost buyer confidence, encourage repeat business and increase loyalty in their provider.
Property partners solve problems for their customers, and when faced with a unique challenge that leaves a service or loan provider stumped, deposit bonds can solve this problem in a quick and efficient way. Sign up as a referrer and we can be the missing piece in even the most unconventional property problems.
Guest Post: by Jared Zak from Dott & Crossitt Deposit bonds are being used increasingly in New South Wales and Queensland conveyancing transactions as an alternative to cash deposits. A deposit bond is essentially a promise given by a highly-rated financial institution to pay a vendor a sum equal to ten percent (or occasionally five percent)… Read more »
As we’ve seen recently, when developers and builders go into liquidation, the danger for your customers is that their cash deposit could potentially be tied up for years as the liquidation plays out. Even worse, their cash deposit could disappear – check out this recent news article here So in the current market when you are acting… Read more »
This infographic is designed to collate and illustrate the key measures the Federal Government has taken in response to The Coronavirus – COVID 19.
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