What you should know about settlement

The last stage of selling your home involves the exchange and signing of the contracts for sale, and settlement day.

Signing the contract for sale

Prior to selling you will have drawn up a contract for sale with the help of your real estate agent and your solicitor or licensed conveyancer. This will outline the terms of the sale, including the settlement period. Terms tend to be quite standardised but may be tailored to your particular property for sale and personal needs.

A buyer makes a formal offer by signing the contract for sale, or they may place a counter offer if they want to negotiate certain terms and conditions. Review this process carefully with your legal advisor as the contract becomes binding when both parties have signed. Counter offers are a normal part of the negotiation process between buyer and seller.

The buyer will pay a deposit to your agent or solicitor, normally within two to three days of exchange – 10 percent of the purchase price is standard. Buyers do have a cooling-off period, generally five days, in which they will forfeit a payment to you (commonly 0.25 percent of the purchase price) if they change their mind. The terms or removal of the cooling-off period can be negotiated. At auction, exchange is immediate and there is no cooling-off period for buyers.

What happens on settlement day?

This is the big day – the title of your sold property is changed over, the buyer pays the remaining amount they owe you and the keys are exchanged. The actual day of settlement will be negotiated during the exchange of contract. A period of four to six weeks from signing the contracts is common.

Settlement will normally be managed by your legal representative and financial advisor. You are responsible for the up-keep of your home, including council rates and utilities, until the day of settlement.

The buyer’s final payment will be transferred by your agent to a trust account. After deducting their commission rate the agent must transfer the amount owing to you. The legislation dictating when this transfer should occur varies between the states and territories so be sure to check with your state’s consumer body. For example, in Queensland the transfer must be made within 42 days of settlement, or sooner if requested, while in New South Wales the transfer must occur as soon as practically possible and within the terms set out by your legal advisor. Make sure you receive a detailed statement from your agent showing all amounts received and deducted from the trust account.

If interest was earned on your money while in the trust account, you need to address how this will be divided with your agent or legal representative. This also applies to interest earned on the deposit that was paid by the buyer at the exchange of contract. The Law Society of New South Wales recommends an even division of the interest earned between you and your representative.