Once a property has been sold, there is a period of time between the contract being signed and the handover of keys, in which a number of important steps must be completed.
When reading through the overview below, the following terms are used:
Vendor: The person or entity selling the property
Buyer: The person or entity buying the property
What does the term ‘property settlement’ mean?
Property Settlement is the final stage of a property sale when the purchaser completes the payment of the contract price to the vendor and takes legal possession of the property.
“Settlement Period” is the amount of time between when contracts are exchanged, and the Property Settlement.
How long does settlement take?
From the day the contract is signed on a property, the settlement period begins. Prior to this, the vendor has the ability to negotiate a settlement period with the buyer.
Many vendors have no special preference for when settlement occurs. If your buyer is also flexible, then you will probably agree on 30, 60 or 90 days. A 60 day settlement is most common (except for NSW which is usually 42 days). That normally gives you and the buyer enough time to organise the financing, paperwork, moving, cleaning and the other details that need to be resolved before settlement.
What happens on the day of property settlement?
What happens on this day varies from state to state and is usually handled by a solicitor or conveyancer, but generally:
• If applicable, the finance lender will authorise payment of the buyers loan money, and payment will be made to the vendor.
• The buyer (or their solicitor) will authorise the vendor to collect the deposit money from their agent, where it has been held in trust.
• The vendor and the buyer will reconcile any adjustments that were pre-paid or accrued during the settlement period (such as rates)
• The buyer will receive the title of the property and the vendor’s solicitor or bank will organise for the Registrar General to register the transfer and home loan (if applicable). The mortgage will be noted on the title until the term of the home loan is completed.
• Both parties will advise the agent in writing that settlement has occurred and that the agent can release the keys to the buyer.
What can go wrong during property settlement?
During the settlement period, communication is key. It’s very important to talk to your agent, solicitor, finance provider and conveyancer about your expectations regarding your settlement period.
The two major things that might occur are:
1. Missing the settlement date: Missing settlement can be very serious. For example a buyer who is unable to settle can be forced to pay interest on the amount they owe for the property. Usually, they have to pay 10% a year – calculated daily. This is negotiable, as the payment date can be extended or interest payments waived if you, as the vendor, agree.
2. Changing the settlement period: Once the settlement date is set and the contract is signed, your options narrow sharply. You may still be able to change your settlement date, but only if the buyer agrees. If for any reason this becomes necessary, give as much notice to everyone involved as you can. Remember, the buyer doesn’t have to agree to your new terms. To protect yourself, it’s best to agree to an appropriate settlement period right from the start.
As settlement day gets closer…
The agent will usually arrange a pre-settlement inspection to allow the buyer to see the property prior to finalising the payment. This is when issues may come up that delay settlement, so make sure the house is looking as it did (or better!) when the buyer last saw it.
A common mistake…
It is not unusual for settlements to be delayed by hours or even a day after the nominated time as everything is organised with solicitors, real estate agents and banks!
If you are the seller and are moving to another home that settles on the same day, think about organising accommodation elsewhere that night ‘just in case’.
In the case of the buyer, avoid organising your furniture delivery for the same day, and think about doing it the next day.