Understanding the Settlement Process when Buying or Selling Property

Buying or selling property is a significant milestone. Settlement day marks the final stage in the transaction and while the process can be exciting, it can often feel complex. Understanding what happens on settlement day and what is involved, can help you feel better prepared. 

This article outlines the key steps involved on settlement day and explains what can affect the timing of settlement and provides answers to some common questions we receive from both a vendor and a purchaser. Whether you are new to property transactions or have been through the process before, having a clear understanding will help you navigate this final stage with confidence.

What happens on settlement day?

The vendor’s lawyer receives a statement from the vendor’s bank (if one is involved) detailing the amount required to discharge the vendor’s mortgage. The vendor’s lawyer checks this figure with the vendor themselves, to ensure it is as expected. 

The purchaser’s lawyer receives the loan advance from the purchaser’s bank (if bank lending is involved).

Once everything is in order from the vendor’s end, the vendor’s lawyer sends a letter containing settlement undertakings, to confirm they are ready to settle.

Once the vendor’s lawyer’s undertakings are received, the purchaser’s lawyer uses the bank lending, together with any other top up funds received from the purchaser to complete settlement, to pay the settlement funds to the vendor’s lawyer.  The purchaser’s lawyer then sends settlement undertakings to confirm they have paid the settlement funds, and that the funds will not be reversed.

Once the funds are received by the vendor’s lawyer, they confirm that the keys to the property can be released. The title to the property is then released by the vendor’s lawyer so that the title is registered in the name(s) of the new owner(s) together with the bank’s mortgage (if applicable).

The vendor’s lawyer then repays the vendor’s mortgage (if applicable) using the settlement funds received on the sale and the mortgage is discharged accordingly. Additionally, with the balance of the settlement funds, the vendor’s lawyer pays any outstanding property rates, water rates and the agent’s commission (if applicable). Once the above has been completed, any remaining balance is paid to the vendor.

How long does the settlement process take and can I settle early?

We cannot guarantee a specific time that settlement will occur as there are many factors outside of our control (set out in the process above).   

Property transactions are also often part of a chain of linked settlements. A settlement chain occurs when multiple transactions are dependent on each other (for example, where a purchaser needs to complete their sale before they can settle their purchase). It is common for there to be three or more settlements involved, along with multiple law firms and banks. Each settlement in the chain must be completed in a sequence, which can impact timing.

Other factors that can cause delays include:

o   The timing of the bank releasing and processing the loan funds to a purchaser’s lawyer’s trust account.

o   The timing of the bank providing a repayment statement detailing the amount required to discharge a vendor’s mortgage.

o   Co-ordination between the parties involved in the chain.

o   Any last-minute matters, such as an issue arising from a pre-purchase inspection that needs to be resolved.

o   The vendor vacating the property.

In most cases, settlement is completed prior to 4:00 pm, as otherwise penalty interest may be charged. In addition, after 4:30pm on the settlement date, banks do not allow “same day cleared payments” – same day cleared payments can be deemed received immediately, and as such funds can be paid out immediately, where necessary. In summary, while we endeavour to complete settlement as early as possible on the settlement date, a number of factors outside of our control can affect the timing.  

If I’m selling my property, when do I need to move out?

Unless a property is tenanted, the property will be sold with vacant possession. This means that prior to settlement taking place, the property must be completely vacant and available for the purchaser to take possession. Personal belongings, furniture, vehicles, rubbish and any other items not included in the sale should be removed from the property prior to settlement.    

As part of the settlement process, the purchaser’s lawyer will generally not release the settlement funds until they are satisfied that vacant possession has been provided. This means that the property should be fully vacated before the settlement funds are paid to the vendor’s lawyer and the ownership is transferred.   Otherwise, a purchaser may arrive at the property and discover that the vendor is still there.

To avoid delays on settlement day, vendors should ensure that all moving arrangements are completed either prior to or early on the day of settlement. If the property is not vacant, the purchaser has rights and remedies under the agreement for sale and purchase, which could result in delays and additional costs. 

If you anticipate any difficulty vacating the property before settlement, it is important to discuss this with your lawyer as early as possible.

When and where does the purchaser get the keys?

Once the purchaser’s lawyer has paid the settlement funds into the vendor’s lawyer’s trust account, the vendor’s lawyer will authorise the release of the keys to the purchaser. This should occur immediately following settlement being completed. 

Where there is a real estate agent involved, the lawyers will notify the agent of settlement, and the agent will contact the purchaser to arrange collection of the keys. If there is no real estate agent involved, the keys can be held by the vendor’s solicitor, and the purchaser collects them from the vendor’s solicitor’s office (although in practice we see a number of different arrangements agreed in terms of key handover).

What happens if settlement is delayed and does not occur by the 4:00 pm cut off?

While most settlements proceed smoothly, as noted above delays can and do occur. 

As noted earlier, under the standard terms of the Agreement for Sale and Purchase, if settlement does not occur by 4 00 pm, the party responsible for the delay can be required to pay penalty interest to the other party. 

If settlement is delayed beyond the settlement date, penalty interest generally accrues on a daily basis until settlement is completed.

The penalty interest rate is set out on the front page of the Agreement for Sale and Purchase and is applied to the outstanding portion of the settlement amount. In some cases, additional remedies may also be available to the party who is not in default, such as having all costs incurred due to the delays covered by the party in default.

If you anticipate any issues with meeting the settlement deadline, it is important to speak with your lawyer as early as possible so that the options can be explored and risks managed proactively.

If a party defaults on settlement and remains in default for more than 12 working days after a settlement notice is issued following the passing of the originally anticipated settlement date, then the other party may exercise remedies available under the Agreement, including cancellation of the Agreement and retention of the deposit paid.

Contact Us

Here at DTI, we understand that buying or selling property can be both exciting and stressful. Whether it’s your first transaction or your tenth, we’ll be right there with you, offering clear guidance and expert advice to help you feel at ease every step of the way.

If you have any questions or are in the process of buying or selling, feel free to contact us by email at [email protected] or by telephone on (07) 282 0174