The settlement process can be daunting for both sellers and buyers. Whether you are buying or selling, it is always good to keep everyone involved informed. Keep written confirmations of any verbal decisions and agreements. If there are any issues regarding the settlement, these will provide assurances.
As for the contract itself ensure that any actions required clearly outline an understood standard. Avoid situations like the one recently where a bare brick wall was required to be rendered to a ‘professional standard’. The seller arranged for a professional to ‘bag render’ the wall, however the buyer did not believe this was a ‘professional standard’. This resulted in a delayed settlement and unneeded stress.
What is a settlement?
Settlement is the completion of the process of transferring property free of any encumbrances such as mortgages or caveats.
The purchasers settlement agent hands a cheque to the vendors bank to discharge the mortgage and the vendor nominates where the remaining balance should go. The purchaser then becomes the owner of the property once the transaction is registered at Landgate and their bank can now lodge their mortgage.
To help you through all this we have compiled a step by step guide from our extensive experience;
9 Steps to reach a successful settlement
Step 1 – Choosing a Settlement Agent
A settlement agent will protect your interests during the settlement process. They can also be a valuable resource in matters such as understanding clauses on the Offer and Acceptance Contract. Most real estate agents will refer you to a settlement agent if there are none appointed by the time it comes to writing up the Offer & Acceptance, though you are not required to go with this recommendation, and may choose your own.
You can do this in by either;
Nominating your own agent in the Offer and Acceptance document, if you wish to appoint your own, but have not yet decided whom, you can specify ‘TBA’, to be advised. Let your real estate agent know as soon as you have one appointed, verbally and by fax or email. Alternatively, decide on a settlement agent prior to the actual purchase or selling of the property so you have an independent opinion to assist you if required during the sale process.
Our suggestion is that you contact us prior to buying or selling so we can manage the transition from start to finish.
Decide the entity or whose name you wish to register the property in before you buy.
The wording of a Contract can have a large impact on how your settlement is conducted. Clear, precise conditions outlining required actions and who is responsible for them will reduce the potential for disagreements and delays.
Note: Secure a copy of all relevant contract documentation at the time of signing any paperwork. It is a legal requirement for you to sign and acknowledge receipt of this information. These are to be retained for your records, with copies provided as required to your financial institution, settlement agent or any other interested parties.
Tips for the Buyer
1. Take nothing for granted. The presence of a dishwasher during your inspection does not mean it will be there come settlement. Avoid conflict; carefully assess the property and list all the items you consider fixtures or fittings in the contract. These items may include; carpets, window and light fittings, dishwashers, TV antennas, clothes lines, garden sheds, security systems, air conditioners and so on.
2. The real estate agent selling the property is acting in the best interest of the seller who will effectively be paying their fee.
Step 2 – Receipt of the Contract by the Settlement Agent
It is important that the original copy of the contract be provided to the buyer’s nominated settlement agency at the earliest opportunity.
The real estate agent will usually organise this but it is a good practice to send them a copy yourself to ensure the settlement agency is able to get to work at the earliest opportunity.
The settlement agent is required to then;
Make an assessment of any potential risk to you and assist in eliminating or minimising this risk. The most common of these is insufficient time being allowed to ensure contract obligations are met, which may incur penalty interest for late settlement.
Ensure any potential conflict of interest is disclosed in the contract. This is generally that a particular real estate agency regularly refers their clients to a particular settlement agency.
If the property is Strata Titled, such as a unit, ensure copies of the required disclosures have been provided.
Examine the Title search to identify any easements such as neighbour access, or encumbrances such as a mortgage, which will need to be removed at settlement.
Tips for the Seller
1. Let your lender know you have received an offer. Ask them to prepare the discharge of your mortgage or any other charge against your title. This may take your bank up to 30 days, which can be a problem depending on when your contract requires settlement.
Tips for the Buyer
1. Complete payment of the deposit to the sellers real estate agent by the specified time
2. Ensure that your application for finance is submitted early. If you are eligible for the First Home Owner’s Grant, which is lodged on your behalf by your lending institution, ensure your lender is just as prompt submitting your application. Until written confirmation is received by the settlement agent, the contract/transfer of land cannot be completed at the First Home Owner rate. This may require the buyer to pay the full stamp duty and seek a refund once approved.
3. Complete any conditions that require action by you early on. For example, you may wish to run a small business from the property so a condition of the contract requires you to establish with the relevant council that this is possible
4. Ensure you have the required Stamp Duty amount at least 10 working days prior to the due settlement date. If you are having difficulties with stamp duty, discuss the issue with your settlement agent.
5. Once we receive your documents we cannot make changes on your behalf.
Step 3 – Giving your agent Authority to Act
The settlement agent is required to obtain a valid ‘Authority to Act’ from the seller, buyer or both, depending of course on their engagement.
Both parties need to read all documents carefully, ensuring you understand what it all means. The wording of these documents can be confusing; if unsure contact your settlement agent as soon as possible to get clarification. The documents should be completed, signed and returned to the settlement agency.
Once given written consent your agent will ensure the contract is lodged for assessment at the Office of State Revenue, or stamped, within the necessary time frame to avoid the possibility of penalties being applied.
Step 4 – Special Conditions
From here your settlement agent will follow up any special conditions of your contract, such as pending financial approval, deposit payment, termite or building inspections and any on-site maintenance stipulated.
Tips for the Seller
1. Clarify agent commissions and selling costs
2. Ensure the buyer has organised any inspections required by your contract
3. Make sure you have met your expectations as you could incur penalty costs if matters are delayed.
Step 5 – The Unconditional Contract
A contract becomes ‘unconditional’ once the purchaser has received finance approval and the relevant inspections have been conducted.
As a general rule, hold off on work done to the property prior to the contract becoming unconditional as this could incur unnecessary.
Now your settlement agent’s work begins in earnest. The buyer’s agent will ensure any identified encumbrances such as mortgages are settled, and the buyer is clearly aware of the identified covenants or easements.
A preliminary settlement statement showing the gross amount of the loan undertaken will be drafted by the buyer’s settlement agent. This will be forwarded to all relevant parties.
The seller’s settlement agent will provide them with a ‘Disbursement Authority’. This is authorisation and instructions on how the proceeds of the sale are to be applied.
Tips for the Buyer
1. Read your loan documentation carefully to determine the extent of fees and charges the lender is entitled to charge -these charges may be deducted from the gross amount of your loan. These expenses should be budgeted for.
2. Your agent should also clarify for you the following :
State Revenue – land tax liability
Water Authority – adjusted water rates, availability of services and any orders and requisitions on the property.
Local Government Authority – property rates for adjustment, any orders and requisitions, Sewer Plan etc
Strata Company (if relevant) – Strata Levies, any special levies
Issue requisitions on the title, (if applicable). Undertake any additional enquiries that may be necessary to satisfy special conditions on the contract.
Undertake any other required enquiries such as Western Australian Planning Commission for any proposals for road widening.
3. Note that the lender will only advise your settlement agent of the net amount of the loan, (after deduction of fees and charges,) on the day, or the day preceding, settlement.
Step 6 – Transfer of Land & other documents
The settlement agent must prepare any pending documents as soon as practical. These will include the Transfer of Land transferring ownership of the property from the seller to the buyer, upon receipt of the payable Stamp Duty. Take care completing the Transfer of Land. Mistakes that require correction could cause the settlement to be delayed.
A ‘final’ settlement statement will be sent to the buyer and their lender. The settlement statement will show all left owing before settlement, as well as the due dates for payment and source of funds, if available.
It is important to allow sufficient for the seller’s settlement agent to send out and receive the Transfer of Land prior to the due settlement date. As a general rule the buyer’s settlement agent should forward this so it is received by the seller’s settlement agent a minimum of five working days prior to the settlement date in the metropolitan area, or 10 working days prior in the country or interstate.
In the meantime your settlement agent will be staying in touch, ensuring you are aware of developments. They will also indicate any issues they see still existing, and assist you in reaching a resolution.
Tips for the Buyer
1. Ensure your agent is chasing any applicable rebates or concessional stamp duty allowances once it has been established the buyer is eligible. Inspectors from the Office of State Revenue conduct random checks; fraudulent claims be liable to criminal prosecution.
2. Keep in regular contact with your lending institution to ensure there is no delay in the preparation of their loan and mortgage documents and that the documents are made available for signing as soon as possible.
3. Deal with any unsatisfied conditions that may require further action by the buyer.
4. Check the settlement statement as soon as it is received to ensure that any additional funds that may be required to be paid are available.
Tips for the Seller
1. It is up to your settlement agent to ensure all water and council rates, plus arrears, are brought up to date before or at settlement. The purchaser is then responsible for the portion of water and council rates, adjusted from the due date of settlement to the end of that financial year.
2. Your agent will request in writing the deposit, less costs, from your real estate agent to ensure these funds are available at settlement.
3. Respond promptly to concerns raised by either settlement agent. You may be required to provide documented proof of any conditionals
Step 7 – Prepare for settlement
Your settlement agent will be taking care of many matters to ensure that the settlement will take place on the due date. These tasks include, but are not limited to:
Ensuring that all contractual requirements have been met and conditions have been completed satisfactorily.
Taking the buyer through their ‘Final Inspection’. Ideally this inspection should be carried out somewhere between 4 to 7 days prior to settlement.
Look through any unusual and/or complex documents from the seller’s settlement agent that will be tendered at settlement. A good example of this is an Application for a Change of Name where a seller has got married and now goes under her married name.
Communicate with all parties to ensure they will be ready for settlement by the due date and time.
Ensure all necessary monies are held or will be collected at settlement. Having someone knowledgeable on your specific case present at the settlement to make sure the correct monies and documents are exchanged.
If the settlement is called off for any reason, such as a party does not turn up at the arranged place and time, documentation may be incorrect, the correct monies are not at hand, etc., your settlement agent will act as soon as possible to resolve the problem and to arrange a new settlement date and time at your earliest convenience.
Tips for the Buyer
During your final inspection ensure any necessary repairs have been attended to and that all gas, electrical and plumbing appliances are in good working order. Contact your real estate agent to make arrangements for collection of keys and confirm possession arrangements for the property.
Step 8 – The Settlement
Advise your agent of your contact details leading up to the settlement date. If something unanticipated occurs, this could save a substantial inconvenience that would occur if the settlement was called off.
Your agent will now lodge the Transfer of Land, and any other applicable documents, to record the transfer of ownership. Notification with be given to the buyer and their real estate agent so the keys of the property can be released to the buyer.
The property is required to be vacant possession by 12.00 pm of the day following settlement if it is the seller’s principle place of residence, OR as soon as settlement takes place if it is not
Step 9 – After settlement
Almost there! Your settlement agent will now be doing some “tidy-up” task such as;
Follow up receipt of any withheld funds, make the necessary adjustments, effect payment as required and forward a final statement, plus any surplus funds held, to the buyer.
Ensure that all funds have been disposed of as required and that there are no further monies held by the settlement agent.
Confirm in six weeks time that the transfer of ownership has been processed and correctly recorded.
Although we have tried to outline the settlement process detail as possible there are numerous matters and variations that can arise that are not mentioned here.
Remember, your settlement agent is paid to help you through this process; they are the expert, not you. When you have any queries at do not hesitate to contact your settlement agent for assistance.
This article come courtesy of Residential Settlements of Western Australia.
At Residential Settlements we have the experience in Western Australia to help you through your settlement.
Our licensee is a solicitor with thirty years experience and can assist with problems that arise. With professional assistance you will be ensuring a smoother transaction. Residential Settlements have dealt with numerous buyers and sellers in Western Australia. We can offer you advice on all you need to know to make the process as easy for you as possible. Website: http://www.residentialsettlements.com.au