Settlement Process - Sellers | Challenge Settlements | Perth based Settlement Agent and Legal Aid

Settlement Process - Sellers

The settlement process when acting for a seller.

For most of us, the process of sale to settlement is a confusing one, simply because most of us only sell a property every five to ten years, or often less frequently.

The most frequently asked question from our clients is, "Where can we find out more information on the process and what is required of us?"

We have tried to outline the process below, however, it must be remembered that no two transactions are the same so this is a general guide only and will not necessarily cover every situation that may arise. Wherever you have a query or concern, you should be seeking guidance and assistance from your settlement agent.

Step 1 - Appointing a Settlement Agent

Ideally a settlement agent should be selected by a seller of a property prior to actually selling the property. Basically, what this means is that the settlement agency should be chosen, and is therefore available to provide assistance, prior to the sale of the property, (for example, you may have a concern or query as to the impact or meaning of a clause on the Offer and Acceptance Contract. If you have selected your settlement agency, you should then be able to ring and seek an explanation or guidance prior to signing the contract, which may involve being referred to other parties for additional advice.)

It should be noted that the wording of a Contract can have a major bearing on the manner in which the settlement is conducted; clear, precise conditions that include a required action, standard of action, responsibility for the action, time for the action and responsibility for cost will ensure the opportunity for conflict will be minimised, (See also Offer & Acceptance conditions) If you have not selected the settlement agent prior to the sale, most real estate companies have an association with a settlement agent and upon the sale of your property, (when they write up the Offer & Acceptance, or the contract) they will generally recommend the services of a settlement agent.

It is important to note that you do not have to accept their recommendation and you are entitled to appoint a settlement agent of your own choosing.
The appointment of a settlement agent can be done in a number of ways and ideally should be done as soon as possible after the sale "contract" has been signed, by either:

Nominating the settlement agent of your choice on the Offer and Acceptance document - if you have not made a decision at that point, get the agent to insert TBA meaning "To Be Advised," and then as soon as practicable, make your enquiries.

Having made your enquiries following completion of the "contract," ideally advise your real estate agent verbally, (with confirmation in writing) of your choice of settlement agent. (It is always a good idea to confirm as many verbal discussions in writing and keep a copy for your records should the need arise, e.g. if there is ever a later dispute as to something that may, or may not have been advised, a copy of the correspondence will provide proof of your action.)

Advise the settlement agent of your choice that you wish to appoint them, and ask them to advise the real estate agent. Alternatively, send the settlement agent a copy of the "contract" and ask them to advise the real estate agent. Either way, you will need to confirm this in writing, (fax is fine,) as a copy will need to be provided to the real estate agent.

PLEASE NOTE it is important to ensure you receive a copy of all relevant contract documentation at the time of signing the paperwork, in fact, this is a requirement by law and your are required to sign and acknowledge receipt of a copy. This should be retained for your records, but copies can also be made and provided to interested parties as required, (e.g. your financial institution, settlement agent etc.)

Action required by the seller

Make your enquiries and decide upon a settlement agent to act of your behalf as soon as possible and ideally prior to the actual sale of your property. This will ensure you have someone independent to assist you if required during the sale process.

Step 2 - Receipt of the Contract by the Settlement Agent

Having appointed a settlement agent, it is important that a copy of the contract be provided to the nominated agency at the earliest opportunity.
This will usually be attended to by the real estate company but it is a good practice to also make a copy yourself and send, or fax, a copy yourself. This will ensure the settlement agency is able to commence working for you at the earliest opportunity.

Immediately upon receipt of a copy of the Contract, the settlement agent is required to do the following:

Read the contract carefully and make an assessment of any potential risk that may be evident and act accordingly to eliminate or minimise any such risk to their client, (this may simply be that insufficient time has been allowed on the contract to enable the necessary procedures to be undertaken and they may recommend that you request an extension of time to ensure you will not incur penalty interest for late settlement.)

Establish if there is any potential for a conflict of interest and ensure that any such conflict is disclosed in the contract, (this may simply be that a particular real estate agency regularly refers their clients to a particular settlement agency. Whether or not they receive any financial benefit from such a referral, it is a requirement that such an association is disclosed on the contract.)

If a Strata Titled property, check to ensure that copies of the disclosures required under The Strata Titles Act have been provided or are provided.

Undertake a Title Search of the property.

Upon receipt, examine the Title Search and identify any encumbrances to be removed at settlement, (e.g. this could be a mortgage for the seller's home loan.)

Action required by the seller

Contact your lending institution to advise that:

You have received an offer for the sale of your property

Request that they commence preparing discharge of your mortgage or any other charge against the title.

This should be undertaken at the earliest opportunity as the banks often require up to 30 days to arrange discharge, (this can be a real problem when the contract requires settlement 21 days from the date of finance approval.)

Step 3 - Set up Client File and obtain a valid Authority to Act

Even though you may have written to, or appointed a settlement agent by including their name of the Offer and Acceptance Contract, the settlement agent is required to obtain a valid "Authority to Act" in the format prescribed by the Settlement Agents Supervisory Board.
Thus, in conjunction with Step 2 above, a Client File covering the specific transaction is set up. This should include making relevant notes of all matters that require attention and diarising of critical dates.

An "Authority to Act" is prepared and forwarded to the client for signing and return. This will also incorporate:

Authority to Act

Authorisation to act for both parties if applicable. (In some cases a settlement agent is appointed to act for both the seller and buyer of a property. In these cases, the settlement agent is required to get the written consent of both parties to do so.

Action required by the seller

The seller should read all documents received and satisfy themselves that they understand what the documents mean. Unfortunately, the wording of these documents can be confusing to many people so, if unsure as to what is required of you, or what the documents mean, contact your settlement agent as soon as possible to get guidance or clarification.

The documents should be completed, signed and returned to the settlement agency as soon as possible.

Step 4 - Identify and Act upon Special Conditions

The settlement agent must identify, record, and diarise follow up of any normal or special conditions on the contract to ensure they are complied with.

These can include, but are not limited to:

Confirm with the seller's agent that the purchaser has paid the deposit as required under the contract, also obtain clarification of agent's commissions, selling costs etc to be retained/or require payment to the selling agent.

Follow up to ensure the purchaser obtains finance approval as required under the contract.

Follow up and ensure all other conditions under the contract are completed as required, in effect, that the seller has done what they have said they will do by the time they said they will do it, and liaise with the buyer's agent to ensure the buyer has done what they said they will do by the time they said they would do it. (E.g. follow up with the purchaser's agent to ensure that any termite inspection or building inspection have been completed and supplied to the respective parties as outlined in the contract, OR follow up with the seller to ensure they have attended to any repairs that may have been stipulated on the contract.)

Action required by the seller

Ensure you are aware of the terms of the contract and that you attend to any matters requiring your attention at the earliest opportunity. There is no penalty in completing any undertakings early, however, there could be major complications, or even penalty costs, if matters are not attended to or are delayed. It is always advisable to make sure that where there are conditions on the contract that require action by the seller, that the required action, or standard of action, is clearly stated and agreed by the various parties prior to undertaking this work. (For example, the offer may require that the seller will render a bare brick wall to a professional standard. This clause in itself in not adequate as it should also include details of the type of cladding agreed by both parties, the colour and so on to ensure that when the work is completed, it will be acceptable to the buyer.)
There was a recent case when this clause was included on a contract, the seller arranged for a professional to "bag" render the wall in question, however, the buyer did not believe "bagging" was rendering to a professional standard. The net result was a delayed settlement and unnecessary stress suffered by ALL concerned, i.e. the buyer, the seller, the real estate agents and the settlement agents. (See also Offer & Acceptance conditions)

Step 5 - Act as required once the Contract is Unconditional

Generally, while there are still conditions to be attended to on a Contract, it is still a conditional contract which means that unless the conditions still remaining are completed as required, the contract may not be fulfilled and the sale may not eventuate.

However, having said the above, it is generally regarded that a Contract becomes "unconditional" once the purchaser has received finance approval. This is because this is usually the condition that more often results in a sale falling through. In many cases today a Building Inspection is also required to be undertaken within 7 days of receipt of finance approval;- in these cases, the "contract" will generally not be treated as unconditional until both finance approval and a satisfactory building inspection report are received.

Again, as a general rule, limited work is undertaken prior to the contract becoming unconditional as this could incur costs that may be unnecessary.

Once considered "unconditional," the real work begins in earnest and will include the following tasks:

Preparation of a preliminary settlement statement and confirmation of the settlement date will be forwarded to all relevant parties (seller and their lending institution/s)

Advise the buyer's settlement agent of the appointment to act on behalf of the seller and provide the buyer's agency with any pertinent information/documentation.

Undertake whatever tasks are required to ensure that all encumbrances (mortgages, caveats etc.) are discharged/withdrawn by the due settlement date. This will involve contact with the relative lending institutions, follow up with the client etc.

Liaise with the buyer, or their representative, to ensure they are provided with all relevant information and evidence of completion of conditions by the seller as well as follow up for satisfactory completion of any conditions required to be undertaken by the buyer (e.g. termite inspection, building inspection, completion of repairs agreed to in the contract etc.)

Forward a "Disbursement Authority" to the seller;- an authority to pay or receive, dispose of and direct payment of funds, (in effect, authorisation and instructions on how the proceeds of the sale are to be applied.)

Action required by the seller

Confirm with your lending institutions that the property has been sold, the offer is now unconditional, and that any mortgages/charges over the title will need to be discharged. This should be undertaken at the earliest opportunity as the banks often require up to 30 days arranging discharge, (this can be a real problem when the contract requires settlement 21 days from the date of finance approval.)

Undertake completion of any remaining conditions on the contract that require the seller's action or attention (see also "Action required by the seller in Step 4 above.)

Step 6 - Arrange execution of documents

Follow up, if necessary, receipt of the stamped, signed, Transfer of Land from the buyer's settlement agent, check it for accuracy and arrange for execution by the seller.

Action required by the seller

Arrange execution and witnessing of the Transfer of Land, as per instructions provided by the settlement agent, and return it to the seller's settlement agent as soon as possible. N.B. the full name, address and occupation is required for the witness/s, failure to complete this information correctly, or any delay in receipt of the Transfer of Land by your settlement agent, could cause the settlement to be delayed.

Step 7 - Prepare for settlement

From the time the Contract becomes "unconditional" and the due settlement date there are numerous other tasks the settlement agent must undertake to ensure that the settlement will take place on the due date. These tasks include, but are not limited to:

Prepare a "final" Settlement Statement, showing adjustment of rates and taxes, as well as any other financial aspects of the transaction, and arrange for this to be provided to the seller, the buyer's settlement agent, and any applicable lending institutions. N.B. It is the seller's settlement agent's responsibility to ensure that 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.

Request in writing the deposit, less commission and other authorised costs as applicable, from the seller's real estate agent to ensure these funds are available at settlement.

Review the file to ensure that all contractual requirements have been meet and conditions have been completed satisfactorily.

Maintain regular communication with the seller and other relevant parties to:

keep them advised of developments;
anticipate and communicate any potential problems that may occur at the earliest opportunity;
seek resolution of any disputes that may develop;
keep seller advised of any further action they may be required to take to make sure settlement takes place on the due date.

Liaise with all parties to ensure they will be ready for settlement by the due date and arrange a settlement date and time.

Advise the seller and their real estate agent of the date and time of settlement.

Confirm with the seller that amounts advised by the lending institution/s to discharge mortgage or other charges over the title are accurate.

Ensure there are sufficient funds held in the seller's ledger in the settlement agent's Trust Account to meet the seller's responsibility for any outstanding water consumption or liability relating to a common meter for gas or electricity.

Action required by the seller

Act as requested by your settlement agent and deal with all matters raised promptly. This may include making contact with your lending institution to ensure they are working towards meeting the settlement date, providing evidence of completion of conditions, etc.

Step 8 - Prepare and attend settlement

Besides the tasks outlined in the steps above, there are again a number of additional tasks to be conducted either on the day before, or day of settlement, to ensure that the settlement goes through as required. These tasks include, but are not limited to:

Obtain a check search of the Certificate of Title to ensure that no additional charges have been lodged against the title and that the seller will provide a title free of encumbrances.

Balance the client's file to ensure all necessary monies are either held, or will be collected at settlement and that no amounts are overlooked.

Attend the settlement ensuring that the person attending the settlement (usually the settlement agent's "Outside Clerk") is fully briefed and conversant with the transaction. This will ensure that the correct documents and monies are exchanged.

Both the seller and their settlement agent should be advised that settlement has taken place as soon as practicable following the settlement, (ideally verbally and in writing.) This is important so that the necessary changeover of the property can take place, (e.g. the real estate agent then knows they can release the keys to the property to the buyer.)

Disburse the sale proceeds as instructed by the seller and provide them with a statement of distribution of funds.

In the event that the settlement is called off for any reason, (e.g. a party does not turn up at the pre arranged place and time; some documentation may be incorrect; the correct monies are not to hand etc), the settlement agent will act as soon as possible to resolve the problem and to arrange a new settlement date and time at the earliest opportunity.

Action required by the seller

It is absolutely essential that the seller advises their settlement agent of their contact details leading up to and on the day of settlement. This is required so that the settlement agent can obtain instructions from the seller should the need arise; this may avoid a settlement being called off and substantial inconvenience to both the seller and buyer.

Vacating the property.
The seller is required to vacate the property by 12.00 pm the day following settlement if they are living in the property OR as soon as it settles if it is not their principle place of residence.

Step 9 - After settlement

Having completed settlement, there will often be a few "tidy up" tasks still to be completed and these can include:

If funds are held after settlement for any purpose, (water consumption etc,) follow up receipt of the necessary information and effect payment as required and forward a final statement, plus any surplus funds held, to the seller.

Notify the buyer's settlement agent that any outstanding amounts have been paid

Ensure that all funds have been disposed of as required and that there are no further monies held by the settlement agent.

Close off the file. Files are required to be held for seven years.

General

Although we have tried to outline the settlement process for a seller in as much detail as possible, there are numerous matters that can arise that are not outlined herein, or variations to the procedures as outlined.

The main point to remember is that your settlement agent is paid to help you through this process;- they are the expert, not you.
Therefore, should you have any queries at any time, do not hesitate to contact your settlement agent for assistance or to answer your questions, remembering, there is no such thing as a silly question.

It should also be noted that while your settlement agent will be dealing with legal documents and procedures, and they can guide and assist you through the settlement process; situations will arise where they are not allowed to provide advice and in such situations, they will recommend that you seek legal advice to protect your interest.