A bond is a type of surety that protects one party from loss or default by another party. Performance bonds are one type and are an agreement that binds two people together in a financial way. Say that you are interested in purchasing a luxurious home with stunning views. The home is in a prime location, and the seller has entertained several different buyers who are all interested in the property. You want the home but have to sell your existing residence first. You decide to discuss the matter with the buyer who agrees to sell; however, the buyer requires a performance bond from you. The bond does two things. It offers protection to the seller and reduces his or her risk that you will back out of the deal. This bond holds you to fulfill your part of the contract; if you do not, the seller can recover damages for your breach of contract.