When selling your home, settlement day is the end of a chapter and the start of a new chapter. You’re (hopefully) moving on to a new home, a new location to explore and grow to love. But first things first. Your buyer needs to settle-up. So, what happens during property settlement and is there anything you need to do as seller?
In case you’re unsure, property settlement is the final stage of the property sale process where ownership of the property is transferred from to your buyer. Whilst it is possible to DIY your conveyancing, regulations and procedures regarding how a property can legally be transferred to a new owner vary from state to state, so you’ll want to hire a reliable solicitor or conveyancer to handle this complex process on your behalf.
How long should your settlement period be?
When we talk about ‘settlement periods’ we’re referring to the amount of time between the exchange of contracts and final payment on settlement day. The most common settlement periods are between 30-90 days, sometimes longer – and as the seller, it’s up to you to negotiate the settlement period with your buyer. If you can remain flexible, you may have interest from a wider pool of buyers and be able to negotiate a higher sales price.
The agreed settlement period should be specified in your Contract of Sale.
What needs to happen before settlement day?
There are several things that need to be prepared before settlement day – however, most of these things fall into the buyers’ domain and will be completed by their legal representative. These include:
- Checking the clauses within the Contract of Sale and making sure both parties meet their obligations.
- Making sure there’s enough time between the final approval date of your buyer’s mortgage and the proposed date of settlement.
- Conducting a background check on the property to make sure any existing mortgages are settled and there are no debts held against the property.
- Your buyer is entitled to inspect the property prior to settlement to ensure it’s in good condition and that measurements and boundaries align with the certificate of title.
What happens on the day?
Surprisingly, your final settlement meeting can be handled by your solicitor and neither you nor your buyer need to attend. During this meeting, legal documents are exchanged and funds transferred. Your buyer will also be liable to pay the land transfer duty.
In some cases, you may be eligible for compensation from your buyer if, for example, you’ve had to pay fees associated to the property in advance (such as council rates or water fees). In such cases, you’ll need to inform your solicitor who can liaise with your buyer to adjust the purchase price of the property to factor in these costs.
Your buyer’s legal representative will check if your mortgage against the property title (if you have one) has been settled and if any third parties with rights to the property have been removed.
Both solicitors will advise you (or your agent if you’re using one) once settlement has occurred and you’ll be able to hand over the property keys to the new owner.
Can anything go wrong?
While problems are rare during property settlement, they can occur. A good solicitor will pre-empt common problems and have legal clauses in place to protect you.
The most common problems involve delays to settlement or missed payments. Delays may occur if finance problems arise on the buyer’s end and in rare circumstances, final payment can be missed altogether due to unforeseen events. In such cases, the buyer is usually liable to pay interest on the amount they owe for the property (commonly 10% per annum, calculated daily). However, if either event occurs the outcome is negotiable between you and your buyer as settlement dates can be extended and interest waived if you agree.
It may be, you as the seller needs to extend the settlement period. If so, you’ll need to get your buyer to agree to the new terms.
Once settlement has been completed, you’re free to move into your new home and start the next chapter of your life!