Property settlement: What is it and how does it work when buying a home?

You’ve signed and exchanged contracts, paid a deposit, and waited out the cooling-off period. What follows next is a critical stage called ‘property settlement’. But what is it and what does it really involve? We take a look.

What is property settlement?

Property settlement, also known as conveyancing, involves transferring a home or land out of the seller’s name and into your name. In other words, you, the buyer, receives the title of the property (proof of ownership) and becomes the registered owner.

The property settlement process can be a complex legal procedure and most people choose to use a legal representative such as a solicitor or conveyancer (depending on where you live), to complete their property settlement.

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 (depending on where you live) 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 examined 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.

How long does property settlement take?

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

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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 the settlement period you will agree to.

You may have some negotiating room around the length of the settlement period. This matters because you could 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. On the flipside, you need to be confident that you will be ready to finalise the purchase by settlement day.

Can you shorten the settlement period?

Yes. While the contract of sale for a property is likely to spell out the settlement period, this can usually be negotiated between you and the seller. However, this needs to be done before you sign the contract. That said, it can pay to be cautious about pushing for a short settlement period. You may be ready to move in straight away, but if anything happens that means you have 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 states and territories – and can also depend on whether settlement is being held up because of the seller or the buyer. For example, if you – the buyer, are the cause of delay, the seller may be able to charge you penalty interest for each day things drag on past the official settlement date. You may also be handed a Notice to Complete, which gives you 14 days to resolve any issues delaying settlement. After this, the seller may have the right to terminate the contract and hold onto the deposit you’ve paid.

Conversely, if the seller is unable to complete the purchase on settlement day, the buyer may be able to issue a 14-day Notice to Complete. If the seller continues to drag the chain, the buyer may be able to back out of the contract and receive their deposit back.

As you can see, it is important to carefully consider the length of the settlement period you will need to complete the sale without risking penalties. It could be a wise idea to talk this over with your property lawyer or conveyancer and your lender.

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.

1. 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.

2. 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.

3. Take out insurance for the property you’re buying

Depending on the 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. Your home loan lender may even recommend (or require) that you take out insurance from the date you sign the contract of sale.

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.

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