FAQ: What should the settlement date be?
One of the most important decisions for a property purchaser to make is when the settlement date should be. The goal is to ensure that the purchaser will be able to pay the remaining funds owing to the vendor on the settlement date.
Settlement is the legal process for transferring ownership of a property, conducted via the online PEXA e-conveyancing platform. It's the date the purchaser becomes the new owner of the property. Settlement usually takes 30-45 minutes to complete, shorter if there are no banks involved.
Settlement occurs on the settlement date listed in the contract, or on another date that the parties subsequently agree to. The settlement date is fully negotiable between the vendor and the purchaser, before a contract is signed, and regardless of any advertising or what the real estate agent says.
Settlement must occur on a working day (not on a weekend or a public holiday). Settlement can occur between the hours at 10am and 5pm, with a new settlement window beginning every half an hour. The start time is usually between 12:00pm - 3:30pm (the exact start time is determined by any banks involved in the transaction; the bigger banks tend to be able to settle closer to 12pm; the smaller lenders generally between 2.00pm - 3:30pm, due to the funding arrangements the banks have with their lawyers and settlement agents). If there are no banks involved, the settlement start time can be as early as 10am. The latest possible start time is 5pm.
If the purchaser is paying cash (no incoming mortgagee bank) then a 30 day settlement period is feasible time to faciliate all the steps in the conveyancing process. But if the purchaser is obtaining a mortgage, then a minimum 45 days settlement is strongly recommended, regardless of any pre-approval, or which lender is involved, or how optimistic the mortgage broker or banker is. A minimum 45 days settlement period ensures that there is time to offset delays with valuations being obtained and processed, or delays and mistakes made with the bank's loan documents (human error is common at the moment across all the lenders). An extra fortnight will mean nothing significant to the vendor, but could make an enormous difference to the purchaser, to ensure their lender is ready to settle on the settlement date, and the purchaser doesn't incur severe financial penalties if they are unable to settle when required.
To avoid ambiguity and potential disputes, it's recommended to state a specific settlement date in the contract (1 September 2023) rather than a loose expression of time (45 days).
A settlement period longer than 90-120 days can incur more risk for a purchaser, as their pre-approval and loan documents could expire, their personal circumstances could change, and the property's condition could deteriorate. This should be factored in to the purchaser's offer price.
Purchasers should be careful of special conditions in contracts that penalise the purchaser if settlement doesn't start at the appointed time. These penalties should always be negotiated out of the contract (deleted), before it is signed, wherever possible, as they are unreasonable in the age of electronic PEXA conveyancing. Nobody has to run down to a bank anymore to deposit bank cheques prior to the banks locking their doors at 4pm. There is no reasonable basis for a contract to require settlement to start by 3pm or 3:30pm. The ordinary business day ends at 5pm and settlements occur in the PEXA system up to a final start time of 5pm. The purchaser therefore, legally, has until 5pm for settlement to begin. Often delays occur on the day well beyond the purchaser's and their lawyer's control, such as the settlements team at the purchaser's bank being short-staffed and late to push their final button in the PEXA system, or a last minute change occurring for technical reasons that requires the purchaser's bank to sign off again. The purchaser and their lawyer and not responsible for the bank's actions. Contracts should require settlement to occur on the agreed settlement date; there should be no reference to any cut-off time before 5pm.
Note: the above is general information and should not be considered as legal advice. Image via Freepik.