An encroachment bond is a type of surety bond used primarily in real estate and construction. It's required by some local governments or other regulatory bodies when a property owner or developer plans to build a structure or conduct activities that encroach upon public property or right-of-way areas. The bond ensures that any damages caused to public property during the encroachment will be repaired or compensated for.
This bond is required in all states, and certain municipalities may have additional requirements to start a project and gain a permit or licensure beforehand. Unlike insurance, this bond protects the state and clients, rather than the principal, against damages and alterations made to public or government property, and work that may be considered risky or harmful to the public. This bond is a financial safety net if the contractor does not abide by all building codes, laws, and regulations.
The cost, or premium, is only a percentage of the total bond amount, and encroachment bond premiums are typically between 1%-3% of the total bond amount. The total bond amount is determined by the obligee and depends on the state and total cost of the project in plan in addition to the risk posed to public and public or government property. Usually, total encroachment bond amounts are set at $100,000, in which case the premiums will likely start at around 3%. In the unlikely chance that the total bond amount is less than $25,000, the rate will be closer to 1%. Surety agencies also base the price on the buyer’s credit score and history, business and personal finances, and professional experience within the industry. Of these, credit score has the most weight. Those with higher credit scores can expect to see rates between 1%-3%, while applicants with an average credit score should expect closer to 5%. Buyers with notably low credit scores can still get bonded, but should expect premium rates closer to 10%.
We’re committed to offering our customers the best rates available on the market for their bonds. To do this, we have partnered with over 10 insurance partners, allowing us to find the best price available for each customer. Each surety company will rate each business differently, so even if a business has been declined or quoted a high premium, we can find a great, affordable quote from one of our 10 partners.
All states require that any individual or business that want to become a contractor for private construction projects that are near, adjacent to, or may reach public property must post an encroachment bond before starting construction, and even obtaining a license.
Unlike typical insurance, a home improvement contractor bond protects the clients and the government that the contractor deals with, not the principal itself. A home improvement contractor bond is a legal agreement between the state or local entity in charge of licensure, the contractor, and surety company. The bond guarantees that the contractor will abide by the law, follow industry standards, stick to building codes set by the local or state government, and prevent damage or alteration to public property. The bond’s purpose is primarily to prevent a project that has altered or damaged public property and/or has posed a threat to the public. In the case that the contractor makes a mistake or is involved in unethical or illegal activity, a claim can be filed against them in order to be compensated for the harm caused. After a claim has been filed, the surety company will pay out an amount not greater than the total of the bond to those affected, and the contractor will be required to pay the surety company the debt that is owed
You can apply for an encroachment bond online by completing an application. You can expect to submit your SSN for a soft credit check, proof of bond requirement from the obligee, business financial statement, copy of engineer’s estimate, and current bank statement of the principle’s company. Once the bond has been granted, it will be in effect and can be renewed annually as long as the principal plans to stay in business. We’ll reach out around 30-45 days before the bond is set to expire to begin the renewal procedure.
Depending on the location and size of the project, additional bonds may be required. This includes but is not limited to:
Permit surety bonds are a type of bond that is often required to be posted in order for an individual or business to obtain a license or permit. It is also the case that these types of bonds must be posted before the company is legally allowed to start on a project. They are primarily in place to protect the government and public from any illegal, unsafe, or unethical activity from being caused by the business. These types of bonds also always cost just a small percentage of the total bond amount, which is determined by the obligee (usually the state or another government agency). Additionally, the premium, or cost, usually depends heavily on the owner’s credit score and financial history.
Right of Way Bond is an umbrella term for bonds that must be posted before obtaining licensure to work on private property that is near or adjacent to public property. The purpose of these bonds is to protect the government and public from any damages or harm the contractor may cause, and ensures that the government and public will be paid financial compensation in the case that damages or harm do occur.