- INTRODUCTION
If you work in the real estate industry—as a mortgage broker, appraiser, property manager, escrow licensee, or real estate agent—your state may require you to have a surety bond. One common type is an Escrow Agent Bond, which helps protect the public and ensures you follow state rules and regulations.
- WHAT IS A SURETY BOND?
Three parties enter into a legal agreement known as a surety bond:
- The Principal: This is you, the professional who needs the bond.
- The Obligee: Typically, the bond is required by your state licensing authorities.
- The Surety: The business that issues the bond and agrees to cover claims if they arise.
When you get a surety bond, you agree to follow all laws and ethical practices related to your profession. If you fail to do so, someone who suffers a loss (like a client or property owner) can file a claim. If the claim is valid, the surety company will pay the affected party. But later on, you have to pay back the surety firm.
- WHO NEEDS A SURETY BOND?
- Mortgage Brokers: Most mortgage brokers must be licensed, and many states require them to have individual surety bonds. Sometimes, the mortgage company gets one bond to cover all its brokers.
- Escrow Licensees: If your state uses escrow services, you may need a surety or fidelity bond. This helps protect clients in case of errors, fraud, or financial losses during escrow transactions.
- Appraisers and Appraisal Management Companies (AMCs): Many states ask appraisers and AMCs to carry surety bonds. These bonds ensure that appraisers follow all rules, and they offer a way to repay people harmed by appraisal mistakes or unethical actions.
- Property Managers: Bonding is a requirement in some states for property managers to obtain a license. By guaranteeing that managers behave honorably and competently, the bond safeguards property owners.
- Real Estate Brokers and Licensees: In some areas, real estate agents must have a surety bond to get or maintain their license. If an agent acts illegally or unethically, the bond can help repay the client for any losses.
- BOND COSTS AND COVERAGE
- Bond Premium: This is the amount you pay for the bond, usually once a year. It typically ranges from 1% to 7% of the bond’s full value. People with better credit usually pay less.
- Bond Amount: Your state decides how much coverage is required. For example, the bond amount for mortgage brokers may be based on the number of brokers at your firm or how many loans were handled in the past year. For escrow companies, it may depend on the company’s size and how much money is held in escrow.
Getting a surety bond is an important step to becoming a trusted professional in the real estate industry. It protects your clients and your reputation.
