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Real Estate Bonds: the Fine Print When it Comes to Working in Realty

By Ben Shepardson | May 29, 2019

Jumping into situations where you don't know what you're in for can be dangerous. We all know the rule: you've always got to read the fine print before signing on the dotted line. This is just as true for real estate professionals; if you're about to get involved in any aspect of the business of buying or selling property, there's a good chance you're going to run into some of that fine print yourself. In this case, it's may take the form of a real estate bond.

What Are Real Estate Bonds?

In most places in the United States, you need to be licensed to be a real estate professional. There are often licensing requirements for becoming a real estate agent, a mortgage broker, or any other profession associated with real estate transactions. This is nothing new, and you're already well-acquainted with this process.

Yet in some places around the country, there are additional requirements. Many states ask realty business professionals to purchase some form of real estate bond, a type of surety bond, as a requirement for becoming licensed. These financial instruments work much in the same way that car insurance does, as you're not allowed to drive a vehicle without having it insured. Like car insurance, these bonds also provide financial protection in case something goes wrong.

Guess What? They're Not About You

However, there's one way that real estate bonds differ from insurance policies, and that's who they're meant to protect. Real estate bonds aren't meant to protect you personally from liability in the case of something going amiss during a real estate transaction. Instead, they're to protect buyers and sellers.

If something goes wrong with a transaction because of an action or an omission on your part, you might be liable for any financial damages suffered by a buyer or seller. If you don't have the personal or professionals resources to pay those damages, the injured party can make a claim against your real estate bond to make up the difference.

How to Get Real Estate Bonds

Real estate bonds are sourced just like any other financial instrument. Most realty professionals that need to be bonded as a requirement of their licensing often turn to insurance agents who specialize in real estate bonds and other types of surety bonds. These agents then use surety bond service providers like to find you a number of quotes.

Good news for you: while a typical real estate bond may cover up to hundreds of thousands of dollars in damages, the cost of purchasing one is only a fraction of that value. While your exact cost may vary depending on factors such as your credit history and what surety underwriter issues your quote, you're typically only going to be responsible for around 1 percent of the total value.

Considering how much a claim could cost you otherwise, it's obvious to see why purchasing surety in the form of a real estate bond is such a good idea. Of course, you may not have a choice, as just about every state in the Union has real estate bond requirements on its books. It's a rarely-discussed cost of doing business, but one that you can't afford to ignore!

Ben Shepardson is a Realty Biz News Contributing Writer and has a long track record of success in online marketing and web development. While pursuing a bachelor’s degree in Computer Information Systems, he worked doing enterprise-level SEO and started an online business offering web development services to small business customers.
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