Settlement is the legal transfer of property ownership from the seller to the buyer. It is typically facilitated by the parties' legal (conveyancer or solicitor) and financial (lender) representatives at a date, time, and location agreed upon and specified in the contract.
The settlement day occurs at the end of the settlement period, typically 30 to 90 days, depending on the territory or state. The length of the period and the exact timing can be negotiated between buyer and seller.
That said, delaying property settlement without the consent of both parties constitutes a breach of contract that can lead to legal entanglements and costly penalties. Whether you're the one selling or purchasing, you must notify the other party immediately about any anticipated delays, and an agreement on an extension must be reached by both.
Common settlement delay causes
Delays in settlement can stem from various issues, often beyond the immediate control of the buyer or seller.
Bank delays
On settlement day, the buyer is required to pay the full purchase price of the property. If they are unable to pay because they are short on funds or their bank is not ready to transfer the amount to the vendor's account or discharging lender, that can effectively hold up the transaction.
"Slow processing times, administrative errors, or missing documents can delay the bank's readiness to settle," real estate lawyer Shinya Hamed told InfoChoice.
But sometimes, Perth-based licenced conveyancer Katelyn Sinclair said, bank delays may not be the bank's fault at all. "Buyers are often unaware of the timeframes required by the banks to process signed paperwork and prepare for settlement," thus resulting in improperly timed settlement date.
"Also, loans involving refinances, substitution of securities, multiple security properties, or guarantors are more complex and require additional time," Ms Sinclair added.
If you're buying using a home loan, confirm with your bank or lender the availability of funds well ahead of settlement. This way, you can negotiate a realistic settlement day when financing is available.
Erroneous or incomplete paperwork
Mistakes in the contract or missing documents can stall the settlement until all paperwork is corrected and complete. Common settlement delay causes Ms Sinclair has encountered include "buyers and sellers returning documents late to their conveyancers or completing their verification of identity late".
Inspection issues
"If the buyer finds defects during the final inspection that needs fixing before settlement, they may refuse to settle until the issue is resolved," Ms Hamed said.
Note that the onus is on the seller to ensure the property is in the agreed-upon condition negotiated in the contract prior to settlement. Any repairs or maintenance tasks not completed on time can therefore delay the process.
With that said, auction contracts are unconditional and unable to be negotiated, so it is up to the buyer to do their checks before sticking their hand up to bid.
Sale chain complexities
Delays can also emerge if the settlement is subject to the sale of another property. "For example, a buyer may be simultaneously selling their current home and cannot settle until their current home has been sold," Ms Sinclair said.
If you're in a similar scenario, a bridging loan can help 'bridge' the gap between selling and buying, thus eliminating the need to wait for the funds to clear to settle on your new home.
What happens if the buyer delays settlement?
A buyer who fails to settle on the agreed-upon day will likely face a range of costly consequences, including additional fees, legal actions, and potential termination of contract.
"The seller is likely to experience various expenses due to the delay, which the buyer may be responsible for covering," Ms Hamed said.
While the primary goal is to complete the transaction, the vendor has the right to seek compensation for any losses incurred. Meantime, a buyer can negotiate for an extension, and the specific penalties are contingent upon whether the seller agrees or not. Either way though, you'll likely have to fork over extra cash.
Scenario A: The seller agrees to extend the settlement
If the seller consents to extend the settlement, a new date will be mutually agreed upon by both parties and documented in writing. An addendum to the original sale contract may also be created to reflect the new settlement date and any additional terms agreed upon.
However, even if the extension request is accepted, the seller may still charge the buyer penalty interest for each day the settlement is delayed. This is usually outlined in the contract. Penalty interest is typically set at 9-10% p.a. (per annum) and is charged from the day after the original settlement date until the transaction is settled.
Suppose you're delayed in settling a property in Western Australia where penalties are charged at 9% p.a on the outstanding balance of the purchase price: a $1 million home with a $50,000 deposit paid will cost you $234.25 per day, including weekends and public holidays, per Ms Sinclair.
"If the buyer disputes the penalty interest charges, the amount of the penalty interest must be held in trust by the seller's solicitor for determination by the courts post-settlement," she added.
Every jurisdiction may have specific legislative requirements and terms for handling settlement delays. This is where it can get a bit confusing.
In WA for instance, there is a three-day grace period where neither party can claim compensation for the settlement delay. However, "if settlement still fails to occur after the three-day grace period, penalty interest is back-dated to the agreed settlement date," according to Ms Hamed.
"In Victoria, if a buyer is liable to pay penalty interest, the amount will be included in the dutiable value of the property, meaning stamp duty is payable on it," she added.
According to the Victoria-based real estate lawyer, if the late settlement interest exceeds $5,000, the duty assessment must be re-lodged for reassessment. If below $5,000, the buyer's legal representative must notify the State Revenue Office within 30 days of settlement. This applies to contracts entered into on or after 1 July 2022.
All states likely differ somewhat, and it is therefore best to engage a conveyancer or solicitor experienced in your state or territory to ensure you're getting the assistance specific to your needs.
Scenario B: The seller does not agree to extend the settlement
If the seller rejects to extend the settlement, several outcomes and actions can occur depending on the terms of the contract and the laws of the jurisdiction.
In most states except WA, the seller may serve a Notice to Complete which gives the buyer a specific period (typically 10-14 business days) to settle. This formal notice, usually stipulated in the standard contract of sale, is a last attempt to prompt the buyer to fulfil their obligations and address the issues causing the delay.
"It essentially means, the seller is ready, willing, and able to settle," Ms Hamed said.
If the buyer fails to remedy the delayed settlement within the notice period, the seller can terminate the contract and retain the deposit as compensation for the losses and costs incurred due to the delay.
Further, Ms Hamed said, the seller can seek additional damages if the forfeited deposit doesn't cover the loss and expenses caused by the buyer's failure to settle. This includes the seller's legal fees, holding costs (i.e. insurance, property taxes, maintenance, etc.), and the difference in resale price.
"If the property is sold for a lower price than the original contract, the defaulting buyer may be liable for the difference and other penalties," Ms Hamed added.
What happens if the bank delays the settlement?
Unfortunately for the buyer, any settlement delay caused by their bank is still considered their responsibility.
"The same consequences apply as if the buyer delayed the settlement themselves," Ms Sinclair said.
However, the buyer may seek reimbursement post-settlement if the delay is due to an error or oversight by the bank.
"We have seen some cases where it is evident that the bank is the cause of the delay. In such cases, the buyer was able to successfully pursue them for reimbursement," she added.
If you're buying a property using some form of mortgage, make sure you provide all necessary documentation and accurate information to the bank to avoid costly settlement delays.
How to avoid settlement delays
Even the best-laid plans can go awry. But that doesn't mean there's nothing you can do to make sure it won't happen. Here are some practical steps to help prevent settlement delays.
Get home loan pre-approval
If you're buying with a home loan, make sure you have pre-approval from your lender before making an offer. A pre-approval or conditional approval not only strengthens your offer, but it also speeds up the buying process since much of the paperwork the bank requires is already completed, thus leading to faster settlement.
Additionally, getting pre-approval helps identify any potential issues with your application, allowing you to address them well ahead of the settlement date.
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Additional Repayments | Split Loan Option | Tags | Features | Link | Compare | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
6.04% p.a. | 6.06% p.a. | $2,408 | Principal & Interest | Variable | $0 | $530 | 90% | Disclosure | |||||||||||
5.99% p.a. | 5.90% p.a. | $2,396 | Principal & Interest | Variable | $0 | $0 | 80% | Featured |
| Disclosure | |||||||||
6.09% p.a. | 6.11% p.a. | $2,421 | Principal & Interest | Variable | $0 | $250 | 60% | Featured |
| Disclosure |
Organise and submit all required paperwork
You wouldn't want to pay hefty penalty interest charges or risk losing your deposit just because you didn't submit your documents on time, right?
If so, organise all required paperwork and ensure there are no missing or incomplete details. Then, "sign and return the documents promptly to ensure the relevant parties have enough time to process them," Ms Hamed said.
Arrange pre-settlement inspections early
If you're the seller, inspect the property and complete all agreed-upon repairs and maintenance before settlement.
If you're the buyer, schedule building and pest inspections as soon as the seller gives the go-ahead to allow time to identify and address any issues that might arise.
Confirm availability of funds
Make sure the payment for the outstanding purchase price plus any adjustments is ready for transfer on settlement day.
A good rule of thumb is that before you agree on a settlement day, you must contact your bank first to find out how long the loan process and fund transfer will take. Set a realistic timeline with enough buffer to make room for any unexpected delays.
Maintain open communication
Keep the communication lines open with all parties involved, including your lender, conveyancer or solicitor, and the seller's representative to promptly address any issues and keep everyone informed of any changes or progress "no matter how minor they are".
"If you expect a delay to settlement, notify your lawyer and the other party as soon as possible to allow time to make alternative arrangements and hopefully come to an agreement between the parties," Ms Hamed advised.
How long does the seller get paid after settlement?
Once the property settlement is completed, the vendor typically receives their payment on the same day or within one to two business days.
On the agreed-upon settlement day, the seller's and buyer's legal representatives will meet to ensure all conditions of the sale contract are met. Once all details are cross-checked and verified, the buyer's lender (if they're using a home loan) will transfer the funds to the seller's bank or conveyancer's trust account.
If you're buying a home with cash, it can be useful to ring your bank ahead of time to make sure you can transfer the amount in a day.
If you're a seller and have an existing mortgage on the property, the lender is paid out first to discharge the mortgage. The remaining proceeds, after conveyancing fees and other charges are deducted, will be deposited into your bank account.
That said, most sellers get paid immediately after settlement. However, payment may be delayed if the settlement occurs late in the day or if there are banking cut-off times. In such cases, you will receive the funds on the next business day.
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