From contract to keys: how property settlement works

Settlement is the moment the purchase price is paid, the mortgage is registered and ownership transfers. Almost all of the work happens in the weeks before it, carried out by a conveyancer or solicitor and a lender, largely out of the buyer's sight. The buyer's own tasks are few but time critical, and missing one of them is the most common reason a settlement is delayed.

This article follows the sequence from the moment a contract is signed to the point where the new owner receives the keys, and identifies the points at which something can go wrong.

Signing the contract and the cooling off period

A contract becomes binding when both parties have signed and contracts are exchanged. In most states a buyer then has a short statutory cooling off period, during which the contract may be terminated, usually at a cost. The periods differ considerably.

State or territory	Cooling off period	Cost of withdrawing
New South Wales	5 business days from exchange, ending at 5pm on the fifth day	0.25 per cent of the purchase price
Victoria	3 clear business days from signing	The greater of $100 or 0.2 per cent of the price
Queensland	5 business days from receipt of the signed contract	Up to 0.25 per cent of the price
South Australia	2 business days from the contract date or receipt of the Form 1, whichever is later	Generally no penalty
ACT	5 business days	0.25 per cent of the purchase price
Northern Territory	4 business days from exchange	Generally no penalty
Western Australia	No statutory cooling off period	Not applicable
Tasmania	No statutory cooling off period	Not applicable

Two qualifications are important. There is no cooling off period on a property bought at auction, and in New South Wales none where contracts are exchanged on the same day as an auction at which the property was passed in. Cooling off rights can also be waived by agreement, and in New South Wales a waiver is given by a certificate signed by a solicitor or conveyancer, commonly required by sellers in competitive markets.

Because two states have no cooling off period at all and the others provide only a few days, the building and pest inspection and the contract review generally need to happen before signing rather than after. The guide to auction and private treaty sales explains how this differs between sale methods.

The deposit

A deposit is payable to the seller's agent, customarily 10 per cent of the price, and it is held in the agent's trust account until settlement. In New South Wales it is common to pay 0.25 per cent at exchange, matching the cooling off penalty, with the balance payable before the cooling off period ends.

The deposit must be in cleared funds, which catches out buyers whose savings are in a term deposit or a fund with a redemption period. Where cash is genuinely unavailable, a deposit bond or a bank guarantee can be used, at a cost, and the seller must agree to accept it.

Conditions: finance, inspection and sale

A contract may be unconditional from the outset or subject to conditions that must be satisfied by specified dates. The most common is a finance condition, which allows the buyer to terminate if formal loan approval is not obtained by a nominated date.

A finance condition is a genuine protection, but it is narrower than buyers expect. It typically requires the buyer to apply promptly, to act reasonably, and to give notice by the due date in the manner the contract specifies. Simply failing to obtain finance and saying nothing does not end the contract. Dates in a contract are usually strict, and an extension requires the seller's agreement.

Other conditions may include a satisfactory building and pest inspection, a satisfactory strata report, or the sale of the buyer's existing property. A sale condition is generally unattractive to sellers, which is one reason some buyers use a bridging loan instead.

What the conveyancer does

Between exchange and settlement the conveyancer or solicitor carries out the work that establishes what is actually being bought and that it can be transferred cleanly. This generally includes:

• ordering title searches to confirm ownership and identify easements, covenants and caveats;
• ordering planning certificates, which disclose zoning and any proposals affecting the land;
• ordering council rates, water and land tax certificates, which establish what must be adjusted and whether unpaid amounts are a charge on the land;
• checking for any notices or orders affecting the property;
• preparing and certifying transfer documents;
• raising requisitions on title with the seller's representative;
• calculating settlement adjustments;
• arranging the settlement itself through the electronic lodgement network.

Searches take time and some are slow. This is the main reason settlement periods are measured in weeks rather than days, and why asking for an unusually short settlement can create problems.

What the lender does

In parallel, the lender moves from approval in principle to a funded loan.

1. Valuation. The lender orders a valuation of the property. Where the valuation comes in below the purchase price, the loan is calculated on the lower figure and the buyer must fund the difference. The guide to property valuations for home loans sets out the options.
2. Formal approval. Also called unconditional approval, issued once the valuation and all verification are complete. This, rather than pre-approval, is what a finance condition requires.
3. Mortgage insurance. Where the loan exceeds 80 per cent of value, the insurer must also approve, which is a separate assessment.
4. Loan documents. Issued for signing and return. Delays here are common and entirely within the buyer's control.
5. Certification and verification of identity. The buyer must have their identity verified, generally in person or through an approved digital process.
6. Settlement booking. The lender joins the electronic settlement workspace and confirms the funds it will advance.

The lender will also require evidence of building insurance naming it as an interested party before it releases funds, so insurance must be arranged in advance.

The pre-settlement inspection

The buyer is generally entitled to inspect the property shortly before settlement, usually in the final few days. The purpose is to confirm that the property is in the same condition as at the contract date, allowing for fair wear and tear, that anything included in the sale is still there, and that anything the seller agreed to remove has gone.

It is worth doing properly. Items commonly found include appliances that have been swapped, damage caused during the seller's removal, rubbish left behind, and services disconnected or not working. Where a problem is identified, the usual remedies are a retention of funds at settlement, an adjustment to the price, or the seller undertaking to rectify. The negotiating position is far stronger before settlement than after it, because once settlement occurs the buyer generally owns the problem.

Settlement day

Settlement is now almost entirely electronic. Most states and territories mandate electronic lodgement, and the great majority of residential settlements are completed through an electronic lodgement network such as PEXA or Sympli. The parties do not meet.

On the day, the representatives for the buyer, the seller, the incoming lender and the outgoing lender join a digital workspace in which documents have already been prepared and signed, and financial settlement is verified. At the appointed time, funds move, the seller's existing mortgage is discharged, the transfer and the new mortgage are lodged for registration, and the transaction completes. Where there is no mortgage on either side the process is simpler, but the sequence is the same.

The buyer's role on the day is limited to ensuring their own funds are in the right account at the right time, and being contactable. The agent releases the keys once settlement is confirmed, which is usually the same afternoon.

Settlement adjustments

The settlement statement apportions outgoings so that each party pays only for the period they own the property. Because councils, water authorities and land tax offices generally bill in advance, a seller who has already paid is reimbursed for the unexpired portion. Items usually adjusted include council rates, water and sewerage charges, owners corporation levies, land tax where applicable, and, for a tenanted property, rent and the bond.

The conveyancer prepares the statement and the buyer should read it before settlement rather than after. It is the document that explains why the amount required on the day differs from the balance of the purchase price. These amounts form part of the cash required at settlement, covered in the guide to the upfront costs of buying a home.

A typical settlement timeline

The following sequence assumes a 42 day settlement on an established home, which is a common period. Dates in a real contract govern, and the conveyancer will provide a schedule specific to the transaction.

Stage	Typical timing	Responsibility
Contracts exchanged, deposit paid	Day 0	Buyer and agent
Cooling off period ends	Days 2 to 5, where one applies	Buyer
Conveyancer orders searches	Days 1 to 5	Conveyancer
Lender orders valuation	Days 1 to 7	Lender
Formal loan approval issued	Days 7 to 21	Lender
Finance condition satisfied or notice given	As specified, commonly day 14 or 21	Buyer and conveyancer
Loan documents issued, signed and returned	Days 14 to 30	Buyer
Identity verification completed	Days 14 to 30	Buyer
Building insurance arranged from the required date	Before settlement	Buyer
Settlement figures and adjustments prepared	Days 35 to 40	Conveyancer
Pre-settlement inspection	Days 39 to 42	Buyer
Settlement and release of keys	Day 42	All parties

The buyer appears in this table only a handful of times, and on each occasion the task is small. That is precisely why those tasks are delayed: they are easy to postpone and each one can stop settlement on the day.

When settlement is delayed

Delays happen, and the consequences depend on who caused them and what the contract says.

Where the buyer is not ready, the seller can generally charge penalty interest on the unpaid balance for each day of delay, at a rate specified in the contract. If the delay continues, the seller may serve a notice to complete, requiring settlement within a further period, commonly around 14 days, after which the seller may terminate and, depending on the jurisdiction and the contract, forfeit the deposit and claim damages. This is the scenario in which a buyer can lose a 10 per cent deposit.

Where the seller is not ready, the buyer's rights differ by state and by contract. Some contracts allow the buyer to claim penalty interest or compensation, and continued delay may allow termination.

The most frequent causes of buyer-side delay are loan documents returned late, identity verification not completed, funds not cleared in the right account, and building insurance not arranged. Each is avoidable. The single most effective step a buyer can take is to return loan documents the day they arrive.

After settlement

A few things follow automatically and a few require attention.

• The transfer and mortgage are registered, generally within days, and the buyer is recorded on title.
• The conveyancer notifies the council and water authority of the change of ownership, and the first rates notice follows.
• Transfer duty has already been paid or exempted, because registration cannot occur otherwise, as explained in the guide to stamp duty on property purchases.
• The first loan repayment falls due according to the loan contract, commonly a month after drawdown.
• Buyers eligible for a First Home Owner Grant on a new home will have had it applied at settlement or will receive it shortly afterwards.
• Locks should be changed, and utilities and mail redirection finalised.

It is also a sensible moment to set up the loan properly rather than leaving the defaults in place: directing salary into an offset account, aligning the repayment date with pay cycles, and confirming whether repayments are set at the minimum or above it. Small decisions made in the first month persist for decades, as the extra repayment calculator demonstrates.

The broader sequence of a first purchase is set out in the first home buyer guide. This article is general information and does not constitute legal advice; conveyancing requirements differ between states and a conveyancer or solicitor should be engaged for any particular transaction.