Alan Hartstein
Athena Cocoves
Property settlement is often seen as the finish line of your home buying journey, marking the moment when your dream of homeownership becomes a reality.
How does property settlement work?
Property settlement is the last piece in the mortgage jigsaw puzzle. On settlement day, your lender releases the mortgage funds to the seller. That step completes the purchase and allows the title deeds to be transferred to your name. At that time, the title deeds are changed so that your name appears on them. You’ll also receive the keys to the property to move in and do with it as you desire.
Property settlements are about much more than just a seller and buyer agreeing on a price, exchanging money and handing over keys. However, they are not always straightforward. They often involve a lot of back and forth over the terms of the contract of sale, the length of the settlement period, and the condition of the property, to name but a few.
Understanding the process and your responsibilities can help avoid disputes and delays, ensuring a smoother settlement experience.
Navigating the settlement period
Settlement is the final step in the property buying and selling process. On settlement day, the buyer pays the seller the remaining costs of the purchase and the title deeds are transferred.
A conveyancer or conveyancing solicitor usually conducts the settlement. It is the culmination of a process that began for the buyer and seller with the exchange of contracts, usually about six weeks before settlement.
The contract exchange process involves the solicitors of both parties exchanging contracts of sale; a legally binding document in which the buyer is obliged to purchase the property. This step is followed by a cooling-off period — usually of around five business days, depending on local rules — where the buyer can still withdraw from the deal. However, terminating within the cooling off period can attract a penalty. For example, in Queensland the seller may impose a penalty of 0.25% of the purchase price on a buyer who terminates during the cooling off period. Sellers have no cooling-off period.
The settlement period after exchanging contracts is flexible and can vary based on the agreement between the buyer and seller. However, both parties may agree to a faster settlement if it’s in their best interests.
Alternatively, they may opt for an extended settlement of up to six months if, for example, the buyer requires more time to get all their finances in order or the seller is in no hurry to move out. Once the settlement date is agreed upon, it will be included in the contract of sale.
🤓 Nerdy Tip
You may also come across the term ‘Completion’ in the settlement process. In Australia, this is an interchangeable term for settlement and is ‘completed’ when both parties have fulfilled their obligations under the contract of sale terms.
Timeline of settlement milestones
The settlement represents the end of a long and painstaking process. Settlement timelines can basically be broken down into three distinct periods:
- the time before the exchange of contracts
- the period between the exchange of contracts and settlement
- settlement day.
1. Before exchange
As a buyer, you will need to do a whole range of things before the exchange of contracts including:
- saving for a deposit
- organising their finances
- applying for the mortgage and being accepted
- making an offer to a seller and agreeing on a price
- getting your solicitor to check the title deeds and ensure there are no outstanding debts on the land or property
- inspecting the property for building or pest damage
- organising other fees such as stamp duty with your solicitor.
» MORE: Costs to know when buying a house
2. After exchange
Once the contracts of sale are exchanged, and during the period before settlement, you will need to:
- organise a final, pre-settlement property inspection
- coordinate with your solicitor, agent and lender to ensure that the funds are ready to be paid in full on settlement day
- arrange to terminate your current living arrangements which may involve a rental lease
- hire a removalist to move out of your old property and into the new one.
- work with utility providers. Turn the power and gas off from your old abode if need be and on in the new one.
At the same time, your conveyancer or settlement agent will draw up a settlement statement. A settlement statement contains a comprehensive list of all payments and receipts related to the settlement and any outstanding amounts owed to the seller or buyer in the form of a statement of adjustment. This could include everything from council and strata rates to rental income if the property has tenants.
3. Settlement day
On settlement day itself, your solicitor will:
- check over the settlement statement to make sure everything is ok
- transfer the total sale amount from your lender to the seller’s solicitor, including the deposit which is usually held in trust from the exchange of contracts
- transfer the title documents from the seller and change the name on the title to yours
- hand over the keys to you.
Both parties are responsible for holding up their part of the bargain so that the settlement process can proceed smoothly. This means providing all necessary documentation and, if you’re the buyer, finalising the loan with your lender or, if you’re the seller, making sure the property is in good condition without any nasty surprises.
There may still be delays due to unforeseen circumstances, but most residential property settlements in Australia are relatively straightforward procedures. Minor disputes and disagreements about the terms of the contract of sale or what’s contained in the settlement statement, for example, can usually be resolved easily.
What is a settlement agent?
Regardless of whether you’re a first home buyer or a seasoned real estate investor, getting the settlement process to run as smoothly as possible without hitches should be everyone’s goal. For this reason, you may want to consider the services of a settlement agent.
A settlement agent is a licensed professional who specialises in handling property ownership transfers. This role includes:
- conducting a title search of the property to ensure there is no outstanding debt on the land or the property
- a review of the contract of sale to ensure everything is in order
- a review of the settlement statement and statement of adjustment to ensure there are no hidden debts or fees still to be paid by either party
- preparing any documents which may be required by the Land Title office in each state and territory
- organising the pre-settlement and final inspection of the property
- liaising with lenders, mortgage brokers, solicitors, and real estate agents to ensure that everything is running smoothly for settlement day and informing you as the buyer of any issues.
Settlement agent vs conveyancer
Settlement agents perform many of the same tasks that a conveyancer does, so it might be a good idea to discuss with a mortgage broker or other real estate professional as to which one is best for you.
In Australia, using a solicitor for conveyancing is not a legal requirement. Still, the main difference between a conveyancer and a settlement agent is that a conveyancer is a trained legal expert who must have professional indemnity insurance in case their client suffers any losses due to their advice.
Engaging the services of both professionals is helpful. They will usually work together to ensure that all payments have been made on time by both parties to the transaction and the lender and that all the necessary paperwork is in order.
About the Author
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