Protecting investments is something Tri Cities area residents and business owners consider in many aspects of life. Insurance policies provide one of the most basic forms of protection, but there's another form of protection that many people overlook: surety bonds. Knowledge of the bonding process can be an especially valuable resource for those invested in the local housing market, including homeowners, house flippers, bankers, construction workers and real estate agents, just to name a few.
The basics
Although surety bonds protect an individual or business up to a certain amount for an upfront fee, it is important to note the difference between insurance policies and surety bonds. Loss is not expected with bonds as it often is with insurance. Bonding is more of a pre-established credit in case an entity fails to fully complete its duties.
Bonding involves three parties:
- the principal–the person or entity who is responsible for completing all agreed-upon obligations
- the obligee–the customer who is seeking protection in case the principal falters
- the surety–the individual or business who issues the the bond between the principal and the obligee
Choosing which type of Washington surety bond best fits your needs might seem tricky, but it's quite simple once you determine the type of protection you need based on the project at hand. Business owners are usually well-acquainted with the bonding process, as many state and local regulations require businesses in many industries to be bonded before they can be issued a license. For examples, sometimes local wineries need to secure a surety bond before being issued a business license.
Bonding in the housing market
In regard to the real estate industry, contract bonds protect consumers in the field of construction and development. These bonds are very applicable to homeowners looking to remodel or renovate their current homes, as well as potential buyers looking to buy a fixer-upper. Home buyers who might be reluctant to buy a house that needs renovations often don't consider how bonding contractors protects their investments. To protect the homeowner and guarantee the quality of his work, the contractor would purchase a contract bond to ensure that all duties are completed as agreed upon. Should he fail to fulfill his duties, the contractor might be responsible for reimbursing the customer up to to the bond's full value.
While surety bonds might seem complicated or confusing, a little research could go a long way in protecting your investments.
