What is settlement in real estate?

So you’ve finally reached the end of the road. The deals are done. The deposit is down. And you’re ready to buy or sell your home. But there’s still one final hurdle to jump—settlement day.

Real estate settlement is the last all-important stage of buying or selling your home. It culminates on the day that the buyer formally takes possession of the property and receives the keys from the seller.

This may sound like a simple process, but there’s a lot to get right in the run-up to the big day. Contracts must be finalised, inspections should be carried out, and budgets must be prepared. It can all begin to feel a bit daunting.

We can say that from experience. DiJones has guided thousands of Australians through settlement since launching in 1992, and we’re often asked how to make the process go smoothly.

So, to help you out, we’re going to walk you through the entire process and give our tips for making settlement stress-free. Let’s start by taking a deeper look at what it entails.

What happens during settlement?

Settlement is the last stage of selling or buying property. It occurs after the contracts and cooling-off period and leads up to the final settlement day (often known as a closing day).

Throughout the settlement, the buyer and seller’s legal representatives will take care of all of the details. The exact process will depend on the home buyer’s and seller’s negotiations, but in general, a few key things happen during this period.

Transfer of ownership

Each party’s legal representatives will review all necessary documents, like the deed of trust, disclosure statement, and promissory note, and sign them once due diligence is completed. These certificates of title are then sent to the title office to register the buyer as the new owner.

Payment of funds

The buyer’s legal representatives will work with a lender to ensure funds are readily available to pay the seller. Once this happens, the buyer will pay the balance remaining on the property on the final day.

Final property inspections

In the lead-up to the settlement day, the buyer also has the right to inspect the property to ensure it is in good condition. This often includes hiring a building inspector to assess for defects. If they find inspection issues, this could impact the sale.

Finalising loose ends

The conveyancer or solicitor will finalise any remaining conditions that apply, such as registering the buyer’s mortgage. The settlement period is also the chance for the buyer to make their moving arrangements and sort out insurance and the transfer of services.

Related: House flipping in Australia: How to do it right

How long does settlement take?

The settlement ends on a final settlement day. As the name suggests, this process only lasts one full business day.

However, the entire settlement period actually takes a little bit longer. There are a lot of details to finalise, so the whole process typically takes 30 to 90 days (one to three months).

This is just an estimate. The length of settlement depends on several things, like whether there are any issues with documentation or during the building inspection. Still, the period is rarely longer than three months.

Preparing for settlement

Settlement may seem pretty daunting. But your conveyancer or solicitor will handle the bulk of the negotiations. Still, there are some things you should prepare in advance as a buyer or seller to make sure the process goes by without a hitch.

Buyer’s responsibilities

As a buyer, you should prepare several crucial things to streamline the settlement period. Here are a few to consider.

1. Finances: You need to have your finances in order when settlement day arrives so that you can pay the seller. Budget for the remaining purchase price as well as conveyancer or solicitor fees. This may include liaising with the bank to arrange home loan funds. Your legal representative can help with this.
2. Insurance: An often overlooked element. You need to make all necessary arrangements for property and contents insurance to take effect on the day of your move.
3. Final inspections: While this is an optional step, we highly recommend it. Hire a building inspector who can thoroughly assess the property during the week leading up to settlement day. Few things are worse than finding a major problem the first week after moving in.

Seller’s responsibilities

Your obligations as the seller are a little more nuanced because you’re serving the buyer as much as you’re making your own preparations. Here are a few things to think about.

1. Ensuring paperwork is complete: This is your biggest responsibility. Along with your conveyancer or solicitor, you need to make sure every document is accounted for and provided to the buyer for review. You also need to review your documentation to ensure everything runs smoothly.
2. Communicating with the buyer: This isn’t an obligation per se. But it’s good practice to keep in touch with the buyer and ensure their needs are met so the whole process moves along smoothly.
3. Vacating the property on settlement day: Once the i’s are dotted, you need to be ready to hand over the keys on settlement day. This includes removing all personal belongings and ensuring the home is sufficiently clean.

Related: The ultimate guide to staging your house for sale

What happens if the buyer delays settlement?

We'd all prefer if the property settlement process was stress-free and easy. But sometimes delays are just part of the game. Let's look at why these delays can happen, what impact they can have, and what the seller can do in response.

1. Why might a buyer delay?

There are several reasons your buyer might be asking for more time. Here are a few of the main ones.

• Financing issues: As the buyer often needs to negotiate with a lender to facilitate the property purchase, they may run into issues when securing finances.
• Property concerns: If the buyer performs their final inspection and discovers a problem, they may request that these issues be ironed out before continuing.
• Other delays: Delays in the conveyancing process. Difficulties coordinating schedules. Illnesses. Unexpected events. All can have an impact on the duration of the settlement process.

From our experience, these are the issues that most commonly impact buyers and cause a delay in the settlement process. With that said, let’s now take a look at how these delays can impact you.

2. What’s the impact of a delay?

So a delay has occurred. What next? The impact of a delay is different for both the buyer and seller. Let’s look at each situation.

The impact of a delay for the seller

If the buyer wants to delay the settlement, this can impact the seller in several ways, including:

• Financial concerns: The seller might run into financial difficulties due to the settlement delay. This is especially true if they were relying on the money from the sale to pay off a mortgage, pay rent, or purchase another property.
• Logistical challenges: If the seller has already vacated the property, they may need to work out temporary storage or accommodation in the meantime.
• Stress: This goes without saying, but unforeseen delays can cause significant stress. Delays can impact plans, both financially and logistically, meaning the seller may need to make new adjustments to account for the setback.

The impact of a delay for the buyer

There are several effects of a delay that can impact the buyer as well. Such as:

• Loss of deposit: If the buyer finds they cannot pay the outstanding balance of the purchase by the agreed settlement date, the seller may terminate the contract, meaning the buyer will lose their deposit and be unable to continue with the process.
• Interest fees: The seller has the right to impose penalty fees and charges on the outstanding balance for each day the settlement is delayed. These can add up quickly, making the total to pay considerably more expensive.
• Legal consequences: Depending on the contract, the seller could sue for damages against the buyer. This could lead to legal and financial damages that the buyer may need to award to the seller. 

3. What Sellers Can Do

If your buyer delays settlement, it can be frustrating, but sometimes it’s unavoidable. Fortunately, there are some steps you can take as a seller to protect yourself.

Communication

In most cases, we suggest starting with open communication. Most situations can be resolved amicably, and resorting to legalities is expensive—it’s best to see if you can talk things through first.

Issue a notice to complete

You can also decide to issue a Notice to Complete. This is a formal document that requests the buyer to settle within a specific timeframe (usually two weeks). If the buyer doesn't settle within the specified time, you'll have more grounds to make a claim.

Seek legal action

If the Notice to Complete goes unanswered, you can pursue legal action. You may be able to terminate the contract and settlement without returning the buyer's deposit. The buyer may also need to provide you with delayed settlement compensation for the inconvenience.

Related: Can you pull out of a house sale before settlement?

Tips for a smooth settlement process

Settlement delays are no fun, so you'd like to get it right the first time. Here are a handful of our top tips for ensuring the process goes smoothly.

• Open communication: On both sides of the equation, open communication is essential. Most issues can be resolved quickly, and giving regular updates can avoid any unwelcome surprises for both parties.
• Early preparation: The best advice we can give is to prepare for settlement early, well before any critical deadlines. You just never know when unexpected complications will arise. Organisation means no surprises.
• Realistic timelines: It’s important to set realistic deadlines for your buyer or seller. Being unrealistic with your expectations causes both parties unnecessary stress.
• Financial security: Consider all additional costs that could impact your financial situation, including council rates, stamp duty, land transfer duty, and the funds needed to pay for a conveyancing lawyer.
• Contingency plans: Things not going as you’d hoped? Have a backup plan in place to address delays before resorting to legal actions.
• Professional guidance: Above all, an experienced realtor can help you navigate the process alongside your solicitor or conveyancer. They’re there to make the settlement process straightforward and hassle-free.

Related: What suburbs have the best rental yields in Australia?

The bottom line

The settlement process is always the most daunting part of buying and selling a home. It can be a pretty stressful experience, and it often feels like the one final hurdle you have to jump over before you can really start to feel excited about transferring ownership.

Our best advice is to know your responsibilities and understand the steps you can take if things go wrong. And in all cases, open communication between the buyer and seller is the key to a smooth property settlement.

In addition, it’s always a good idea to get professional support to guide you through the process. Real estate agents, solicitors and conveyancers know how to help if you’re selling or buying your first home and will gladly guide you through the process from start to finish.

We should know. At DiJones, we have helped thousands of Australians buy and sell their homes since 1992. If you'd like some extra advice on how to settle on time or want to book our services, get in touch. We're always happy to lend our expertise.