The process of settling a property is a fairly well-oiled machine, but without preparation and contingency, costly settlement delays are always a risk.
Velocity Conveyancing director Peter Romano says financing issues remain the number one cause of property settlement delays, potentially adding to what is already the single greatest expense in most people’s lives. And in most cases, they’re avoidable.
“Buyers should be getting the ball rolling on finance in a timely manner because banks and their solicitors can be notoriously slow at paperwork,” he says.
“Particularly when a large development is ready, the bank will have hundreds of transactions to settle in a small window. So you can’t expect them to respond quickly if you’ve left it until registration day.”
Peter particularly cautions those who have made pre-COVID off-the-plan purchases because the spike in property values and cost of building materials and labour mean developers stand to profit significantly from settlement delays.
At the very least, a buyer could lose valuable incentives built into the contract subject to timely settlement.
“It could be curtains, floorboards, a $20,000 gift card to buy appliances,” Peter says.
“Developers are very strict with those incentives and it makes sense because if enough people fail to settle on time, it could represent a big saving.”
But it could be worse.
“If you’re late to settle, the developer is within their rights to terminate the contract, keep your deposit and resell the property for more than what they sold to you,” he says.
“And why wouldn’t they? If that’s the agreement you struck, you must be ready to settle on time. And there could be a substantial windfall for the developer if you don’t.”
Peter says the settlement delays that spiked during COVID have not fully abated.
“It started during COVID when a lot of the banks were having documents processed in centres offshore,” he explains.
“Those centres were closed or unable to process documents and things had to be moved back onshore.
“At the same time demand in the market spiked and banks weren’t set up to process those volumes as efficiently as those overseas backend systems. And capacity hasn’t fully recovered.”
He says off-the-plan buyers should keep in touch with developers as to their expected completion date, get the ball rolling on securing financing three months prior and “build contingency” into their plan.
“It can be hard to mitigate all risk for a purchase made two, three or even five years prior,” Peter says.
“You don’t know if there will be a tightening of rules in the meantime, interest rate rises, a global financial crisis. As we have all seen, any number of things can change in a few short years.
“Banks’ appetite for things change, too. For example, they might finance a lot of residential house purchases in Canberra then realise they have too many and cut back, or they might feel they have too much exposure to one particular development and tighten lending criteria to that development.
“Brokers should be prepared to switch finance pathways as needed.”
For standard purchases, aside from having to pay any additional legal fees for delayed settlements, standard conditions allow a seven-day grace period before interest kicks in. But delays are easily avoided altogether with proper organisation.
“People making standard purchases really shouldn’t even be making offers unless they have their finances sorted and the bank on stand-by,” Peter says.
Delays can also stem from problems coming to light during building and pest inspections, however Peter says this can be built into the contract.
“There’s usually plenty of time to sort these things out.
“In the ACT the standard settlement period is 28 days and in NSW, during COVID it stretched to 42 days – though that is now starting to normalise as well.”
Velocity Conveyancing stresses not to bank on moving into your new home on the day of settlement.
“In many cases people are selling a house and buying another the same day. They have a truck picking up their stuff and taking it straight to their new home on the day of settlement,” Peter says.
“If something goes wrong, you might have nowhere to live. Again, it’s about contingency.”
For more information visit Velocity Conveyancing.