Delayed settlement

What are the costs of delayed settlement?

The rules and regulations differ depending on which state or territory you live in, but generally speaking if your side is responsible for a settlement delay it could cost you. Even it's for circumstances beyond your control.

A property buyer on the Gold Coast, David Christopher, recalls being charged $265 in penalty interest when buying an apartment. The cause of the delay was his bank, which was running behind on processing paperwork and simply couldn't settle on time. The seller charged penalty interest to accommodate the 1-week delay.

4 possible consequences of a settlement delay

1. Penalty interest. In some jurisdictions, the buyer or seller may have to pay penalty interest for each day settlement is delayed. In most states, the seller is in a better position to charge penalty interest than the buyer if the other party causes a delay.
2. Postponed settlement. Sometimes a property sale won't settle on time, for any number of reasons. In some cases, the best option is simply to postpone settlement for a few days until the issue is resolved.
3. Deposit returned. In some cases when settlement is delayed the transaction may end up cancelled and the seller returns the deposit to the buyer.
4. The buyer loses the deposit. This is the worst case scenario for a buyer. And again, this really varies by state/territory, the reason for the settlement issues and the specifics of the contract but in some cases if the buyer is the cause of settlement falling through completely (rather than a short delay) they can lose their deposit. A subject to finance clause in a contract can protect against this.

7 reasons settlements can be delayed

After finding the perfect home and having your offer accepted, you may feel relief that the house hunting is finally over. But just because you’ve signed a contract doesn’t mean that it’s a done deal. There are still plenty of problems that could arise before you actually take possession of the house.

There are several frustrating and potentially costly issues that could cause settlement to be delayed, including:

1. Bank mix-ups and processing delays

Both the buyer and seller may be relying on their lender to come through with finance or finalise a discharge of their old mortgage. Settlement can't occur until everything is sorted. Bank errors, missing paperwork and delays can happen.

"Often it is the bank that is not ready to release a mortgage because the seller may have put the release authority in late, given many sellers don’t put it in until the property goes unconditional and sometimes this only leaves 1 to 2 weeks before settlement. Some banks can turn it around in a week but others take up to 6 weeks to prepare for settlement," explains Katie Richards, a property lawyer for the online law firm Virtual Legal.

Laura Vickers, principal from Nest Legal in Northcote, Victoria, adds that "the risk of bank error is exacerbated if the purchaser or vendor themselves have been tardy in signing documents or picking up errors by the bank."

2. Final inspection issues

Sometimes, the buyer might discover an issue during their final inspection of the property before settlement. For example, the buyer might discover a faulty garage door hasn’t been fixed. This problem (and its rectification) could be essential to the sale of the property going through.

"The buyer may have put other requirements on the seller, such as fixing items on the house in exchange for going unconditional on building and pest, so the seller may need more time to affect the repairs," Richards says.

3. Difficulty selling another property

When a contract is dependent on the sale of another property to move forward, this can cause delays. For example, in order to be able to afford the purchase of a property, you may first have to successfully sell your current home.

4. Late or incorrect documentation

During the conveyancing process, a range of important documents, including the Transfer of Land, must be submitted to the relevant government bodies. If either the buyer or seller is slow to return completed paperwork to their conveyancer, this can cause delays.

5. Valuations

6. Seller delays

"Sellers can also delay settlement by not having moved out of the house, or not having a tenant moved out of the house where vacant possession is to be provided, and in some of these cases the relevant state authority needs to be involved to evict the tenant," Richards says.

7. Other issues

Vickers mentions a few other less common issues that can sometimes cause a delayed settlement:

• Third-party issues (for example, a caveator not removing a caveat)
• The vendor not vacating the property in time or not being able to locate the certificate of title
• Solicitor/conveyancer error (for example, a party’s settlement agent being held up in traffic and not making it to the settlement in time)

How to reduce the risk of delayed settlement

The following are some of the steps you can take to minimise the chances of settlement being delayed for any reason:

• Be organised. "Sign and return documents as soon as you are asked to by your solicitor and your broker. Return them by express post or personally," Vickers says. "The bank certification process can take several weeks in peak periods and your solicitor needs to get documents to the other side to give them time to sign them before settlement. If you want to nominate an additional or substitute purchaser, decide this early."
• Ensure your funds/deposit/contribution are cleared funds in your bank account. This is particularly important if you are using a gift from a family member – on settlement day, if "funds to complete" haven't hit the bank account in time for settlement, this can cause an unnecessary delay.
• Choose the right team of professionals. "You want your solicitor/conveyancer, buyer's advocate and mortgage broker to be contactable and promptly answering any questions you have," Vickers says.
• Communicate. Keep your broker, solicitor and, if necessary, your buyer's advocate or the real estate agent in the loop about any developments that affect them. Ask questions early in the process if there's anything you're unsure of.
• Pay attention to detail. Double-check all documents for discrepancies. Do the figures in the bank documents match what you discussed with your broker? Do the names on the transfer and stamp duty documents match those on the contract and do they match those on your bank documents? Raise any discrepancies with the relevant people as early as possible so the issues can be fixed in time.
• Play nice. Being prepared to cut the other party some slack whenever they have a good reason for running a little late can go a long way to ensuring a smooth and on-time settlement. Richards says, "If the buyer asks for an extension on finance for 2 days for a good reason and the seller says no – causing the buyer to have to go unconditional without finance approval in hand – then when it comes time to settle, if the seller needs an extension to remove a tenant or something on title, then the buyer is less likely to want to be helpful and may refuse that extension then too."

"When I bought my home there was a very tiny delay of 30 minutes. Our conveyancer called and explained that the seller's bank (a small credit union) had missed one bit of paperwork, which was quickly sorted. They explained that the electronic system for settlement worked in timed increments so we missed our scheduled window. It was really no issue at all. But I have heard buyer horror stories of sellers delaying settlement for weeks and buyers having to put everything in storage and stay with relatives until they can move in!"

Richard Whitten

Senior Money Editor

Frequently Asked Questions

• What does settlement delay mean?

  A settlement delay occurs when the agreed-upon date for finalising a property purchase is postponed. This can happen due to various reasons, including paperwork issues, or a delay in finance being ready to finalise the transaction.

• What happens if PEXA settlement is delayed?

  If a PEXA settlement is delayed, it means that the electronic process for transferring funds and property ownership has been postponed. This is usually rescheduled so that settlement can happen at a later date.

• What is the penalty interest on a delayed settlement?

  Penalty interest on a delayed settlement is a fee that the buyer may be required to pay if they cause a delay. This interest is calculated based on the contract terms, often around 9-12% per annum on the purchase price.

• What is the longest settlement period?

  Usually, when you buy a house the standard settlement terms are 30 to 60 days. It can sometimes extend up to 120 days or more, depending on the agreement. The longest settlement periods usually apply with off the plan properties, which can have settlement periods of many years.

• How long after house settlement do I get paid?

  Payment is typically made on the day of settlement. The seller will receive the funds from the buyer's lender or solicitor, usually within a few hours of the settlement being completed.

To make sure you get accurate and helpful information, this guide has been edited by Richard Whitten as part of our fact-checking process.

Written by

Sarah Megginson

Money expert + media spokesperson

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Sarah is the author of How to Raise Rich Kids. With over 20 years of experience in property, finance and investment journalism, she is a trusted expert whose insights regularly appear across television, radio and print media, including Sunrise, Channel 7 News, Bloomberg and Yahoo! Finance. She has previously served as managing editor for Your Investment Property and Australian Broker. Her expert advice has been shared in the media over 4,000 times. Sarah holds a Bachelor’s degree in Communications and a Tier 1 Generic Knowledge certification, which complies with ASIC standards. See full bio

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