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Disclaimer
This information is general in nature only and does not constitute legal advice. While Budget Direct has endeavoured to ensure the information we’ve relied on is accurate and current, we do not guarantee it. Budget Direct accepts no liability for this information and recommends you obtain legal advice specific to your individual circumstances before entering into any contracts for the purchase of property or obtaining of finance.

The home buyer has worked how much they can afford to borrow, researched the property market, and inspected a property they like.

They’ve since made an offer to the seller that they’ve accepted.

And the buyer and seller have signed a contract of sale (perhaps subject to finance approval, a building inspection and/or pest inspection).

Now what?

You’re now entering the final leg of your home-buying or -selling journey: property settlement.

What is property settlement?

Property settlement is the process for transferring ownership of a property from the seller to the buyer. 

The process is facilitated by the seller and buyer’s legal representatives (e.g. conveyancer or solicitor) and financial representatives (e.g. bank manager).

(This property settlement process should not be confused with the arrangement between divorcing couples to divide assets, liabilities and financial resources.)

How long does property settlement take?

The property settlement period varies from state to state; for already-built properties it generally lasts 30 to 90 days.

Some parties may elect to allow for a longer settlement period by mutual agreement.

Off-the-plan unbuilt properties may not settle for a number of years.

The settlement period begins on the day the written contract of sale is signed by both parties (also known as the ‘exchange of contracts’).

It ends on the settlement day (the parties agree on this date at the time they sign the contract).

This period enables the buyer, seller and their legal and financial representatives to secure financing, undertake title searches and relevant paperwork, and relocate.

Happy couple being handed keys

What is ‘settlement day’?

Settlement day is the contractually agreed date on which the sale of the property is finally settled.

It’s the day the buyer pays the balance of the sale price to the seller and ownership changes hands.

Who’s involved in the property settlement process?

The main players in the property settlement process are usually the:

  • seller
  • seller’s legal representative 
  • seller’s discharging lender
  • buyer
  • buyer’s  legal representative
  • buyer’s incoming lender (often assisted by the buyer’s mortgage broker).

All of the parties should work together to ensure all the legal and financial requirements of the real-estate transaction are met within the timeframes stipulated in the contract of sale.

Among the keys to a smooth property-settlement process are clear communication and timely responses between the parties.

When should I engage a conveyancer or solicitor?

When selling or buying a home, a good rule of thumb is to engage a conveyancer or solicitor as early as possible.

In some states, conveyancing is required before the property is put onto the market; in others, the conveyancing starts when the seller accepts the buyer’s offer.

Though you’re not legally required to use a conveyancer or solicitor,  most property experts strongly recommend you do.

That’s because property settlement demands an understanding of legislative requirements and legal jargon.

When choosing a conveyancer or solicitor, you may wish to consider whether they:

  • are experienced in your state or territory and — if they’re a solicitor — are registered with the relevant law society
  • make the process simpler and easier for you, by providing digital tools such as electronic contract signing and smartphone verification of identity
  • offer a price and scope of services appropriate to your needs (check whether they fix their fees)
  • have good reviews from real people (e.g. on Facebook, Google, local business pages). 

Conveyancing costs vary between providers, which range from one-man operations in a single state to large, national firms like lawlab.

What happens before settlement day?

The following table outlines the some of the main responsibilities of each of the parties in the weeks leading up to settlement day.

Obligations and specific requirements may differ between individual contracts; if you’re unsure who’s accountable for what, ask.

Who What
Seller’s legal representative
  • Conducts property and title searches.
  • Prepares legal documents (e.g. contract of sale).
  • Liaises with and provides legal advice to their client.
  • Responds to buyer requests (e.g. contract conditions, deadline  extensions).
  • Books a settlement date with the seller’s discharging lender.
Seller
  • Signs the contract of sale.
  • Verifies their identity to their legal representative and signs a client authorisation form.
  • Signs a discharge authority form and gives it to their discharging lender.
  • Covers all property-related bills up to settlement day.
  • Arranges for power and water to be disconnected.
  • Organises removalists and alternative accommodation.
Seller’s discharging lender
  • Processes the discharge authority signed by the seller.
  • Advises the seller’s legal representative of the mortgage payout amount.
Buyer
  • Signs the contract of sale.
  • Verifies their identity to their legal representative.
  • Pays the agreed deposit.
  • Signs the home loan documents and returns them to the lender on time.
  • Signs the transaction documents (e.g. transfer duty forms).
  • Pays the land transfer duty (formerly known as stamp duty) when advised to do so by their legal representative.
  • Arranges building and pest inspections.
  • Buys home insurance.
  • Organises removalists and reconnection of power and water.
  • Inspects the property shortly before settlement day.
  • Collects the keys from the real estate agent or seller.
Buyer’s legal representative
  • Reviews the contract of sale, including any special conditions.
  • Conducts due-diligence property searches (to check whether there are any issues or risks with the property title).
  • Examines the strata inspection report (if the property is a residential unit or townhouse within a complex).
  • Informs the seller’s legal representative if and when the contract becomes ‘unconditional’.
  • Liaises with and provides legal advice to their client.
  • Responds to seller requests (e.g. contract conditions).
  • Calculates financial adjustments.
  • Books a settlement date with the incoming lender.
Buyer’s incoming lender
  • Arranges a property valuation.
  • Informs the buyer when they have obtained finance approval and when it becomes unconditional.
  • Prepares and issues home-loan documents.
  • Provides funding to complete the settlement.

What is a ‘contract of sale’?

A contract of sale sets out the terms and conditions agreed upon by the property seller and buyer.

In some states a listing contract is prepared when a property is listed for sale.

Prepared by the seller’s conveyancer or solicitor or, in some states, the seller’s real estate agent, the listing contract excludes details such as the selling price and settlement date.

The contract of sale commonly includes details such as:

  • conditions of sale (e.g. finance approval, building inspection)
  • which fixtures and chattels are included in the sale of the home — and which can be removed by the seller
  • names of the buyer and seller (also referred to as the purchaser and vendor )
  • property’s address and legal description 
  • deposit amount
  • property sale price
  • settlement date
  • whether the property will be available as a vacant possession or tenanted.

The contract may also be accompanied by prescribed disclosure documents (often referred to as a vendor statement or disclosure statement).

(Disclosure requirements vary between states. Some have robust seller disclosure regimes and others are more “buyer beware”.)

The contract is generally legally binding once both parties sign it (the buyer may have the right to cool off in some states or the right to cancel the contract if they can’t satisfy contract conditions such as finance).

Due to the complexities of contracts, property experts recommend buyers obtain independent legal advice before they sign one.

Can a contract of sale be signed if finance has not been formally approved?

It’s common for sellers to sign contracts of sale with buyers who have only in-principle, or ‘conditional’, approval for their home loan.

That’s because lenders often make formal, or ‘unconditional’, finance approval subject to a signed contract of sale or a valuation of the property.

For this reason, many contracts of sale include a ‘subject to finance’ condition (though it’s not common practice in New South Wales).

Depending on the terms of the contract, if the buyer’s home-loan application is declined, they may be entitled to end the contract and get their deposit back.

If you’re the highest bidder at an auction, you’ll need to be confident of securing a home loan to pay for the property, as these contracts usually don’t include ‘subject to finance’ conditions.

Happy couple signing document

What happens to the deposit?

The buyer’s deposit is usually paid directly into the seller’s real estate agent’s trust account (or their legal representative’s trust account).

It can be paid by electronic funds transfer, cheque, or sometimes by deposit bond or bank guarantee.

The buyer asks for a receipt from the real estate agent to confirm the payment.

The real estate agent generally holds the deposit in their trust account until settlement day, at which point it is transferred into the seller’s bank account.

The buyer and seller’s legal representatives will search the relevant state or territory’s land registry to find the certificate of title (CT) for the relevant home.

A CT is a public and legal record of land ownership, including interests and restrictions on the land.

A title search is essential as it ensures the buyer is aware of any restrictions or outstanding rights on the property.

Among the most important things revealed by a title search are:

  • who owns the land
  • easements — a right given to another person (who does not own the property) to use the property for a specific purpose (e.g. for utility services or right of way)
  • covenants — guidelines and/or restrictions on what can be built on the land, where it can be built, and from what materials it can be built
  • caveats — a warning that someone else has an interest in the property, which prevents the owner from selling it
  • mortgages – if there’s a mortgage on the property that needs to be discharged before settlement.

Is there a cooling-off period?

Some states and territories have a cooling-off period that allows home buyers to change their mind and cancel the sale even though they’ve signed a contract.

Other states, including Tasmania or Western Australia, have no cooling-off periods.

The cooling-off periods range from 2 to 10 business days.

If the buyer ends the contract within the stipulated period, the seller may be required to give back their deposit — less any cooling-off termination fee, which varies between states.

(Buyers wishing to end a contract should speak to their legal representative.)

Buyers who purchase a property at an auction are generally not entitled to a cooling-off period.

The cooling-off period may also not apply to properties listed for — but ultimately not sold at — auction if the contract is entered into close to the auction date (the timeframe varies between states).

That’s why it’s critical your conveyancer or solicitor reviews the contract of sale before auction day.

When should I get home insurance?

It’s not a legal requirement, however the buyer’s legal representative will usually recommend they insure the property they’re buying as soon as they exchange signed copies of the sale contract with the seller.

In some states the property may be at the buyer’s risk soon after they sign the contract.

Regardless, most mortgage lenders require buyers to take out home insurance before the loan becomes unconditional.

Buyers should ask their insurer for a copy of the certificate of currency and pass it on to their lender.

The buyer’s contents insurance should be arranged before they move their belongings into their new home.

Find out more about Budget Direct Home and Contents Insurance

Woman using laptop

When does a home loan become unconditional?

When you apply for a home loan, you may receive pre-approval, or ‘conditional’ approval, from the lender.

This means they’re happy — in principle — to lend you the money, based on your income, outgoings, deposit, etc.

However, your lender will likely require more information before making a final decision.

For example, they may ask for:

  • your most recent pay slips
  • a valuation of the property you want to buy (which they’ll arrange, to ensure the property is not over-priced) 
  • a signed and dated contract of sale.

If you meet all the lender’s requirements, they’ll give your home loan application formal, or ‘unconditional’, approval.

This approval is effective for about three months, which is usually enough time for you to complete the purchase of the property.

You should ask your lender about any conditions attached to their approval.

What if a home loan is refused?

If your home loan doesn’t get approved, you should notify your legal representative immediately, and no later than the finance-approval date in the contract of sale.

If the contract was subject to finance approval, you may be able to cancel the contract.

If not, you may lose any deposit you have paid.

The seller or real estate agent may ask you for a letter from the bank stating that you applied for finance and that the application was refused.

How do pre-purchase building and pest inspections work?

Building inspections are designed to uncover any building defects — such as structural problems and the presence of asbestos — home buyers would otherwise be unaware of.

Similarly, pest inspections are intended to reveal any pest infestations — most notably termites — that may be causing internal damage to a building’s structure.

In some states, favourable building and pest inspection reports are common conditions of contracts of sale.

These inspections are typically arranged by the buyer, shortly after they sign the contract (if the contract has an inspection condition) or before exchange (if the contract does not have an inspection condition).

Experts recommend you use independent professionals who specialise in building and pest inspections (not inspectors recommended by the real estate agent).

Before employing an inspector, make sure they have the appropriate licences to carry out inspections and are reasonably experienced.

Inspectors should examine all accessible parts of the property, inside and out, including the exterior and interior of the roof and underfloor spaces.

If you’re buying a strata-titled property (e.g. an apartment or townhouse), it’s recommended you get a strata inspection report as well.

The report includes financial details about the owners corporation (also referred to as the body corporate) and any common-property defects that may require the owners to pay a special levy to fix.

What if a property fails its building and pest inspections?

If a buyer’s purchase of a property is conditional on a satisfactory building or pest inspection and the inspection reveals problems, the buyer may be able to cancel the contract without penalty.

Generally, a contract can only be ended if the building’s defects or pest infestation are severe.

If they’re only minor, then the buyer may give the seller an opportunity to fix the problem so the sale can be completed.

Even major defects may be fixable by the seller, though the contract period may need to be extended to allow time for this remedial work to be completed.

Alternatively, the buyer may decide to get quotes to fix the problem and renegotiate the sale price downwards to accommodate this expense.

If the pest inspection uncovers any problems, ask your legal representative for help.

House inspector under floor

What happens when all the contract conditions have been met?

Once all conditions in the contract of sale have been met (e.g. the buyer’s finance has been formally approved, the property has passed a building inspection), the contract becomes unconditional.

This means the sale must proceed.

If the buyer is unable to settle, they will likely face severe financial consequences for defaulting on the contract.

What is a pre-settlement property inspection?

A few days before settlement day, the buyer can contact the real estate agent to arrange an inspection of the property.

The purpose of this inspection is to ensure the property is in substantially the same condition it was when the contract of sale was signed weeks earlier.

This includes features such as walls, light fittings and floor coverings.

The buyer also checks any items included in the contract of sale are still on the property and, where applicable, in working order. These include:

  • fixtures (e.g. stove, hot-water system, carpets, air-conditioning units) 
  • chattels (freestanding, movable items, e.g. pool and spa equipment, potted plants, washing machine).

If the inspection reveals any problems, ask your legal representative for help.

What happens on settlement day?

On settlement day the buyer’s legal representative meets with the buyer’s lender, the seller’s legal representative and the seller’s discharging lender to settle the sale of the property.

Property sales can be settled online or, in some states, offline (using traditional paper documents).

The offline method requires the parties to meet at a physical venue. Typically, buyers and sellers do not need to attend the settlement.

Following an electronic settlement, the land title register will be updated to show the buyer as the new owner.

Following a paper settlement, the buyer’s incoming lender will usually lodge the transfer documents with the state land title registry.

It may take a few days to a few weeks for the register to be updated (depending on the state or territory).

Once that happens, the local authorities (e.g. city council) are usually informed either by the land title registrar or the buyer’s legal representative (depending on the state or territory).

Happy couple in front of house

What is a ‘settlement statement’?

A ‘settlement statement’ is a document that shows what the buyer has to pay the seller on settlement day.

(It’s also sometimes referred to as ‘settlement adjustment sheet’ or ‘statement of adjustments’.)

Typically prepared by the buyer’s legal representative, it includes all the payments and receipts related to the settlement (e.g. deposit, land transfer duty, legal costs).

It also includes adjustments made to the settlement amount for outgoings, such as council rates, water rates and strata fees that the seller has paid for in advance beyond the settlement date.

Adjustments are made so that each party only pays for the outgoings for the period in which they own the property.

Both parties should check the settlement statement carefully before advising their legal representatives to proceed with final settlement.

When can the new owner of a property move in?

Shortly before settlement, the seller usually vacates the property and gives their real estate agent the keys to the property.

After the legal representatives have confirmed the sale of the property has gone through, the agent will generally arrange a time with the buyer to hand over the keys.

In case settlement is delayed a day or two, property experts recommend buyers do not plan to move in on settlement day.

If you’re a seller moving to another home that settles the same day, it’s recommended you also have back-up accommodation elsewhere in case of delays.

Disclaimer
This information is general in nature only and does not constitute legal advice. While Budget Direct has endeavoured to ensure the information we’ve relied on is accurate and current, we do not guarantee it. Budget Direct accepts no liability for this information and recommends you obtain legal advice specific to your individual circumstances before entering into any contracts for the purchase of property or obtaining of finance.