Real estate developments make some big promises to their customers. Those who choose to go through a developer and have a new house built need to choose the plot of land, select a house design, and then go through all of the steps towards getting it finished, such as picking out wall colors and flooring types.
On the developer’s end, they need to make sure that all of the construction deadlines are met, which relies on a number of factors, like subcontracting out the work and ensuring that all of the supplies arrive on time. If something should go wrong, thankfully, there’s a surety bond in place to provide some protection.
So, what does a surety bond do? And why is one necessary? Here are the answers to those questions and more.
Protecting the Consumers
A surety bond is like a promise. These bonds are taken out by the developers before the plot of land can officially be filed with the local government and before any of the construction can begin. This is due to government regulations that demand consumers are protected in these situations. Since there’s a lot that goes into building a new home in a new development, the government wants to ensure that the construction will take place and be completed on time.
When a surety bond is taken out, the developer is showing the consumer, or new homeowner in this case, that they can be trusted. They’ll complete the work on time and will even guarantee it for a certain amount of time after the move-in is finished. Otherwise, the bond will be called in and the consumer will be reimbursed the amount that’s agreed upon by the bond holder and surety company.
How Do Surety Bonds Work?
A surety bond is similar to an insurance policy, only without the premiums and other things that are associated with insurance in general. When the bond is taken out, the bond holder pays a single premium amount that’s usually a fraction of what the bond is worth. Should it need to be paid out, the full amount of the payout will be due to the surety company. This gives the bond holder, in this situation, the developer, an additional incentive to get the work done.
Since the bonds have to go through an underwriting process before the premium is paid, the developer needs to prove that they have the funds required to meet the conditions that they promised. This prevents a potential homeowner from taking out a construction loan and getting their dream home underway, only to have everything fall through because the developer couldn’t follow through with their promises. This type of protection is a good way to ensure that the homeowner isn’t taking on the risks themselves.
Have Questions? Contact Charlotte Insurance
Want to learn more about surety bonds for real estate developers? Contact Charlotte Insurance. Our agents can explore and explain all available options and put together the insurance coverage plan your business needs.