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

Settlement Process - Buyers

The settlement process when acting for a buyer.

For most of us, the process of purchase to settlement is a confusing one, simply because most of us only buy a property every five to 10 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.

It should also be noted that settlement fees are higher for a buyer than a seller; this is simply because the process is more complex and requires numerous additional tasks to be undertaken when acting for a buyer.

Step 1 - Appointing a Settlement Agent

Ideally a settlement agent should be selected prior to actually purchasing the property. Basically, what this means is that the settlement agency should be chosen, and is therefore available to provide assistance, prior to the purchase 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 or be directed to seek additional advice if required.)

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)

Another important consideration is to take nothing for granted; just because there is a dishwasher in the property when you inspect it, it does not mean it forms a part of the purchase. To avoid conflict, carefully assess the property being purchased and list down all the items you consider may be fixtures or fittings, (items that should remain with the property at settlement) and then ensure all these items are noted in the relevant place on the contract. These items include, but are not limited to, fixed carpets, window treatments and light fittings, dishwashers, TV antennas, clothes lines, garden sheds, security systems, even some air conditioners, cubby houses and so on.

If you have not selected your settlement agent prior to the purchase, most real estate companies have an association with a settlement agent and at the time of purchase, (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. It should also be noted that when purchasing from the agent selling that property, the real estate agent is acting in the best interest of the seller who will effectively be paying their fee.

The appointment of a settlement agent can be done in a number of ways and, if not chosen prior to the purchase, ideally should be done/confirmed as soon as possible after the purchase "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 and make a decision. If not done promptly, settlement could be delayed.

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 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 buyer

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

Step 2 - Receipt of the Contract by the Settlement Agent

Having appointed a 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.

This will usually be attended to by the real estate company but it is a good practice to also make a copy then send or fax a copy yourself to your chosen settlement agent. This will ensure the settlement agency is able to commence working for you at the earliest opportunity, particularly if there is a delay in receipt of information from the real estate agent.

Immediately upon receipt 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 the agency 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.

Action required by the buyer

Ensure that any initial requirements under the contract are undertaken, this will include:

complete payment of the deposit by the specified time to the sellers real estate agent

ensure that your application for finance is submitted at the earliest opportunity. If the buyer is eligible for the First Home Owner's Grant, (the application is lodged on behalf of the buyer by their lending institution) it is also important to ensure your lender submit your application ASAP, then follow up receipt of approval of the Grant. Until the First Home Owner Grant is approved, and the necessary confirming documentation is received by the settlement agent, the Office of State Revenue will not allow stamping of the contract/transfer of land at the First Home Owner rate. A delay in receipt of the approval may require that the buyer will be required to pay the full stamp duty amount and seek a refund once approval of the First Home Owner Grant is received.

complete any conditions that require action by the purchaser in the early part of the purchase process, (e.g. it may be the purchaser's desire to run a small business from the property being purchased and a condition of the contract requires the purchaser to establish with the relevant council that the proposed small business can be conducted from the proposed property and this clarification is required to be obtained within 7 days of acceptance of the contract.)

make the necessary arrangements to ensure you have the required Stamp Duty amount at least 10 working days prior to the due settlement date. This may require that you will make the necessary arrangements with your lending institution/broker; the earlier the request, the better the chance of assistance. See also Why do I have to pay stamp duty prior to settlement?"

If you are having difficulties with stamp duty, discuss the issue with your settlement agent.

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 nominating them on 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 as well as:

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

Appointment to Act in the prescribed format

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.)

Diarise all critical dates, in particular, to 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.

Action required by the buyer

The buyer 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 to follow up any conditions on the contract to ensure they are complied with.
These can include, but are not limited to:

Diarise to follow up to ensure the purchaser has obtained finance approval as required under the contract by the due date, and on receipt, advise other relevant parties of the approval.

Diarise for follow up to ensure all other conditions under the contract are completed as required, in effect, that the purchaser will/has done what they have said they will do by the time they said they would do it, and liaise with the seller's agent to ensure the seller has/will do what they said they would do by the time they said they would do it, (eg. follow up with the purchaser to ensure that any termite inspection, or building inspection has been completed and supplied to the respective parties as outlined in the contract.)

Action required by the buyer

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.

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 purchase 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 purchase 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 the buyer's agent will:

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

Undertake a Title Search of the property. Upon receipt, examine the Title Search to:

identify the property
establish ownership and determine which encumbrances, (charges against the title) need to be discharged (loans etc,) and those that will remain, (restrictive covenants etc.)
any charges or covenants that should be drawn to the attention of the buyer, (e.g. sewerage reserve and similar.)

Undertake the following enquiries:

State Revenue - to establish any land tax liability
Water Authority - to establish water rates for adjustment, availability of services and any orders and requisitions on the property. The buyer will be advised of any orders or requisitions that may exist.
Local Government Authority - to establish the property rates for adjustment, any orders and requisitions, Sewer Plan etc., which will be advised to the buyer, plus details of any Housing Indemnity Insurance.
If a Strata Titled property, an application together with the relevant fee is forwarded to the Strata Company for a Certificate under Section 43 of the Strata Titles Act, (this confirms the amount of Strata Levies, any special levies, and other pertinent information that the buyer should be aware of.)
Issue requisitions on the title, (if applicable). This only relates to situations where the 2000 print, or earlier, of the "Offer & Acceptance Contract" is used.
Undertake any additional enquiries that may be necessary to satisfy special conditions on the contract.
Undertake any other enquiries that may be prudent in the circumstances, (e.g. Western Australian Planning Commission for any proposals for road widening.)

Follow up satisfactory completion of any other conditions still remaining on the contract, (termite inspection, building inspection, completion of repairs agreed to in the contract etc.)

Liaise with the seller, or their representative, to ensure they are provided with all relevant information and evidence of completion of conditions by the buyer as well as follow up for satisfactory completion of any conditions required to be undertaken by the seller.

Preparation of a preliminary settlement statement which will be forwarded to all relevant parties (buyer, their lending institution/s, the seller or their representative and so on.) Please Note, this preliminary statement will show the gross amount of the loan, (as advised in the loan approval) being provided for the purchase. The purchaser should read their loan documentation carefully to determine the extent of fees and charges, stamp duty on mortgage etc, that the lender is entitled to charge and these charges may be deducted from the gross amount of the loan. In such cases, the amount of money provided by the lending institution may be up to several thousand dollars less than the gross amount of the loan and the purchaser should have made provision for these costs in their budgeting.

Action required by the buyer

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

Also check your loan documentation, or alternatively check with your Mortgage Broker/Lending Institution to establish the extent of fees and charges that may be applied against the gross amount of your loan so that you can budget accordingly, (the amount provided by your lender may reduce by up to several thousand dollars to cover their fees and charges, this being deducted from the gross loan amount.)

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 - Preparation of Transfer of Land & other pertinent documents

In conjunction with Step 5 above, the settlement agent must prepare any pertinent documents as soon as practical for distribution and execution. These will include:

Preparation of The Transfer of Land, (This is the document that will transfer ownership of the property from the seller to the buyer and is lodged with the Department of Land Information immediately after settlement.) Copies of the Transfer of Land will needed to be distributed as follows:

Original to the buyer for signing and return.
Copy to the buyer's financial institution, (this will allow preparation of the lender's mortgage documentation.)

Calculate the amount of stamp duty required to be paid by the buyer, taking into account and First Home Owner Grant or Concessional Rebates that may be applicable. Advise the buyer the amount of Stamp Duty payable and request this is returned with the signed Transfer of Land.

Provide any necessary application/s for rebate or concessional stamp duty under the Stamp Act and send them to the buyer for completion and signing having established that the buyer is eligible for either or both. (Please Note; Inspectors from the Office of State Revenue conduct random checks and if the buyer has obtained a rebate fraudulently he/she may be liable to criminal prosecution.)

The settlement agent will also prepare a settlement statement as soon as possible and forward copies to the buyer and their lender. The settlement statement will show all amounts required to be paid by the buyer to enable settlement to be effected as well as the due dates for payment and source of funds, if available. (See also Step 5 in relation to any deduction from the gross amount of the loan as advised by your lending institution.)

Action required by the buyer

The Buyer should read, sign, have witnessed and return the Transfer of Land at their earliest opportunity, together with the Stamp Duty as advised by the settlement agent. N.B. 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 the buyer's settlement agent in the first place, and subsequently the seller's settlement agency, could cause the settlement to be delayed.
The buyer should keep in regular contact with their 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 by the buyer as soon as possible. If the buyer is eligible for the First Home Owner's Grant, (application lodged on behalf of the buyer by their lending institution) it is also important to follow up receipt of approval of the Grant. Until the First Home Owner Grant is approved, and the necessary confirming documentation is received by the settlement agent, the Office of State Revenue will not allow stamping of the contract/transfer of land as per the First Home Owner rate. This may result in the buyer having to pay the full stamp duty amount and seeking a refund once approval of the First Owner Grant is received. (See also Step 2 above.)
Continue to deal with any unsatisfied conditions that may require further action by the buyer.
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 and provided to their settlement agent/lender, as applicable, as soon as possible. N.B. Take care when reading the settlement statement. As we are only advised of the gross amount of the loan being provided by the lending institution, that amount is shown on the settlement statement. However, quite often the lender will deduct all their fees and costs from the gross loan amount so the actual funds available from the lending institution at settlement may be several thousand dollars less than shown on the statement. Please check your loan documentation and if in doubt, clarify this issue with your lending institution.

Step 7 - Effect payment of Stamp Duty and forward Transfer of Land for signing by seller

Follow up, if necessary, receipt of the signed Transfer of Land from the buyer together with any other documentation to be returned, (e.g. identification of the property etc.)
Once received, the Transfer of Land will need to be stamped within the required time frame and the stamped, signed Transfer of Land will be forwarded to the seller's settlement agent who will arrange signing of the Transfer by the seller.
It is important that sufficient time be allowed to enable the seller's settlement agent to send out and receive the Transfer back prior to the due settlement date. (As a general rule, the buyer's settlement agent should forward the Transfer of Land so that 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 to the settlement date in the country or interstate.)

Step 8 - 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:

Review the file to ensure that all contractual requirements have been meet and conditions have been completed satisfactorily. Maintain regular follow up to ensure all conditions/requirements are fulfilled as soon as possible (e.g. ensure the buyer has received a copy of and accepts any Termite Inspection Report, Orders and Requisitions against the property, Sewerage plans etc.)

Follow up confirmation in writing with the buyer that any/all conditions to the contract have been completed either prior to settlement or by the due date stated on the contract.

Advise the buyer of their right to inspect the property, commonly known as "The Final Inspection." Ideally this inspection should be carried out somewhere between 4 to 7 days prior to settlement. This inspection allows the opportunity for the buyers to ensure that, for example, any necessary repairs have been attended to and that all gas, electrical and plumbing appliances etc. (usually as specified on the contract,) are in good working order. The settlement agent will seek written confirmation of the satisfactory outcome of this inspection and the buyer's authority to proceed to settlement.

Request copies of any unusual and/or complex documents from the seller's settlement agent that will be tendered at settlement and check that any such documents are in order. (E.g. an Application for a Change of Name may be used where a seller has got married and now goes under her married name.)

Maintain regular communication with the buyer 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 buyer 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 buyer and their real estate agent of the date and time of settlement.

Forward a revised Settlement Statement, if required, to the buyer and their lending institution.

Confirm with the buyer that amounts advised by the lending institution/s as proceeds of their mortgage are sufficient/accurate and arrange receipt of any additional funds required to meet the full purchase costs.

Suggest the buyer contact their real estate agent to make arrangements for collection of keys and confirm possession arrangements for the property.

Action required by the buyer

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 9 - 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 necessary discharges of mortgages/charges are noted for collection at settlement.

Balance the buyer's file to ensure all necessary monies are either held, or will be paid over at settlement by other parties attending, (e.g. buyer's lending institution.)

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.

Attend to the lodging of the Transfer of Land, and any other applicable documents, (if applicable,) with the Department of Land Information to enable recording of the transfer of ownership etc on the property.

Both the buyer and their real estate 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 of the property to the buyer.)

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 buyer

It is absolutely essential that the buyer 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 instruction from the buyer should the need arise; this may avoid a settlement being called off and substantial inconvenience to both the buyer and seller.
Possession of the property:
The buyer is entitled to vacant possession of the property by 12.00 pm of the day following settlement if the sellers have been living in the property OR as soon as settlement takes place if it is not their principle place of residence.

Step 10 - 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, (e.g rates or taxes not yet raised etc,) follow up receipt of the necessary information, make the necessary adjustments, effect payment as required and forward a final statement, plus any surplus funds held, to the buyer.

Notify the seller'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.

Diarise to ensure a search of the property's title is conducted in six weeks to confirm that the transfer of ownership has been processed and correctly recorded.

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