Put simply, property settlement is the process by which ownership of a property passes from vendor to buyer. It starts on the day the sale contract is signed and concludes on ‘settlement day’ when ownership of the property officially changes hands.
While your conveyancer or solicitor can manage the legal, financial and administrative tasks of property settlement on your behalf, when you’re buying or selling such a major asset it’s also a good idea to understand the process yourself.
Read on for an overview of the five key steps involved:
1. Both parties agree to a settlement date
The settlement date marks the conclusion of the sale transaction. This date is stipulated in the contract, and usually takes place six weeks after the contracts are exchanged. However, this can vary depending on what is agreed between the buyer and vendor.
On the date of settlement, the buyer must pay the seller all outstanding costs to ‘settle’ the purchase of the property. If a buyer can’t settle by the date stipulated, interest is likely to be charged.
2. Seller and buyer prepare for settlement
Buyers and sellers don’t typically attend the settlement in person; instead, solicitors, conveyancers and bank representatives liaise to exchange the necessary cheques and documents. Therefore, buyers should have all their finances in place, while sellers should be prepared with all legal and handover documentation.
Depending on the state in which the property is located, the risk of damage to the property passes from the seller to the buyer at different stages of the buying process. In South Australia, Tasmania, Australian Capital Territory, and Queensland, the buyer is responsible for any damage before settlement upon the exchange of contracts. In New South Wales, Victoria, Western Australia, and Northern Territory, the buyer is responsible for any damage on settlement. Buyers need to understand their state’s rules and organise home insurance accordingly.
3. The buyer conducts a final inspection
At some stage in the week before settlement (or even on the same day), the buyer inspects the property to check its condition hasn’t changed since the contract signing, namely that:
- It is reasonably clean and hasn’t been damaged or changed
- Appliances, fixtures and fittings are in working order
- All furniture, rubbish or building materials have been removed
Keep your conveyancer/solicitor abreast of your final inspection – they can advise what to look out for and what to do if you notice any problems.
4. The final payment is calculated
Shortly before final settlement, your conveyancer/solicitor will issue a pre-settlement adjustment statement listing adjustments to the purchase price from things like stamp duty concessions or applicable first home-owner grants.
While the vendor is responsible for all bills prior to settlement, where items like water/council rates or body corporate fees have been paid in advance the vendor will be compensated and the price adjusted accordingly.
Buyers should check the pre-settlement adjustment statement carefully before instructing their conveyancer/solicitor to proceed to final settlement.
5. Ownership is transferred from seller to buyer
And now for the final (and most exciting) part of the process – settlement day! This is when the seller receives payment and the buyer takes legal possession of the property.
Firstly, the buyer’s payment is handed over to the seller’s conveyancer/solicitor who then provides the signed transfer documents.
Any third-party rights over the property such as mortgages or caveats are released, before transfer of ownership is registered with the relevant government title office and land transfer/stamp duty is paid by the buyer.
Lastly, the lender draws down the final settlement amount from the buyer’s loan account and the property’s title is officially transferred to the buyer.
This concludes the property settlement process and allows all parties to breathe a collective sigh of relief, before stepping away as the proud owner of a new property or happy vendor paid in full.
The process of buying and selling can sometimes feel daunting, but you don’t have to go it alone. Speak to your local Belle Property office today for advice and assistance, including an obligation-free appraisal of your home’s current value.
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