Property settlement: What is it and how does it work?

NICOLA FIELD
Personal Finance Writer · 24 September 2021
You’ve signed and exchanged contracts, paid a deposit, and waited out the cooling-off period. What follows next is a critical stage called ‘settlement’. But what does it really involve?

The home buying process can be a blend of stress and excitement, and one of the most important stages is settlement. Once settlement is complete you’ll be handed the keys to your new home, and it’s yours to enjoy. However, exactly what occurs during settlement can be somewhat unclear at times.

What happens in a settlement period?

The settlement process kicks off as soon as you (the purchaser) and the property seller (or vendor) have each exchanged signed copies of the contract of sale, and you’ve paid a deposit. At this point, the whole deal may seem done and dusted. But in many ways, the process of buying a home is only just beginning. That’s because the next step, property settlement, covers the legal process of transferring ownership of the property from the seller’s name and into your own. So it’s a time when your solicitor or conveyancer kicks into action.

Behind the scenes, your legal representative will conduct various property searches, and prepare the necessary legal documents for the property to be transferred into your name. Also during the settlement period, your legal rep will work out the funds required for settlement. That’s because council rates, water rates and strata levies (if you’re buying an apartment) usually need to be pro-rated so that the seller and buyer each pay their fair share up to the date of settlement.

There’s also stamp duty to be sorted, plus any entitlements you may be eligible for such as the First Home Owner Grant or savings on stamp duty.

Long story short, settlement is a busy time for any lawyers or conveyancers involved in the deal!

How long is a normal settlement?

The property settlement period can vary, and while six weeks is a reasonably typical timeframe (see the table below), in most cases the seller and buyer can negotiate their preferred settlement period.

The following table is a rough guide as to when settlement may happen, but settlement can often be delayed longer than the timeframes shown:

Typical settlement periods by state and territory
QLD Usually four to six weeks
NSW Usually around six weeks
ACT Normally 30 to 90 days
VIC Usually 30 to 90 days
TAS Negotiable between buyer and seller
SA Usually four to 12 weeks
WA Negotiable by buyer and seller
(at least six weeks is recommended)
NT Usually 30 to 90 days

Source: State and territory government websites.

How do you choose a settlement period?

Prior to signing the contract of sale, you should ideally read over it a couple of times and ask your solicitor or conveyancer to check it out as well, to be sure it doesn’t contain any clauses that could work against you. This is also a good time to speak to your legal adviser about what settlement period you will agree to.

You may have some negotiating room around the length of the settlement period. This matters because you may need to meet certain conditions, such as selling your old home, before you can finalise the purchase of the new place. Bear in mind though, the seller also has their own goals to achieve. They may have committed to buying elsewhere for instance, and may want a quicker settlement. Trying to haggle too much over the settlement period before you sign the contract could potentially see a seller walk away from the sale.

Can you shorten the settlement period?

Yes, in Australia the settlement period can usually be negotiated between you and the seller. However, it could pay to be cautious about pushing for a short settlement period. You may be ready to move in straight away, but if anything happened that meant you had to delay the settlement date, such as your home loan taking longer to be approved than you expect, the seller may be able to claim financial compensation.

The exact laws around this can vary across different states and territories. In Queensland, for instance, Brisbane Conveyancing notes that if a buyer is unable to settle on settlement date, the seller may be able to terminate the contract while still holding onto the full deposit, and they may also choose to take legal action. None of these possibilities will help you celebrate your new home with joy, so the moral of the story is to be very careful before you opt for a shorter than normal settlement period.

Steps you can take during settlement

The property settlement period is a time for your legal team to get to work, but there is plenty you can do as well, to help ensure a smooth handover on settlement day.

Engage a solicitor or conveyancer before you sign a contract

Having your legal team lined up from an early stage means the settlement process can get started from the date of exchange of contracts without delay.

Have sufficient funds available to allow settlement to go ahead

This means having adequate money on hand for you to pay for stamp duty, lenders mortgage insurance (if necessary) and any other upfront costs that can go hand in hand with the home buying process.

Take out insurance for the property you’re buying

Depending on what state or territory you live in, it’s possible you could become responsible for any damage to the property from the moment you sign the contract and pay your deposit. So it could be worth ensuring you have adequate home and contents cover in place from the purchase date.

With some careful thought and forward planning, settlement can progress smoothly, so that you can move into your new home from the day the property settles.

Main image source: Monkey Business Images (Shutterstock.com)


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