How to: Choose the right settlement period

Upon buying or selling a property there is what is called a ‘settlement period’. This is the length of time between which the buyer completes payment of the contract and then takes over ownership of the home.

Up until settlement, the property is the legal responsibility of the vendor. That is, they will be required to pay rates for up to, and including, the day of settlement. After this, the buyer takes over.

As the property is not transferred until settlement day, the buyer will not yet have a mortgage over the home.

Remember, the settlement period can be used as a negotiating tool to help get a deal over the line. It is not uncommon to see disagreements over the settlement period cause a sale not to occur.

Common settlement periods

Common periods for settlement are usually 30, 60 or 90 days. In New South Wales, 42 days is fairly common, while in other states and territories it tends to be 60 days.

However, this isn’t set in stone and both parties can ask for longer or shorter settlement dates. Both the vendor and the buyer must agree on the settlement period, and this can cause some issues if different motivations come into play.

Delays can happen on the vendor and the buyers end, and they may wish to change the settlement. However, this will have been written into the Contract Of Sale and neither the vendor nor the buyer is under obligation to change to suit the other after the initial agreement.

The settlement period allows time for conveyancing, organising the move and lining settlements up with other property interests.

It is unlikely the buyer will be granted access ahead of the settlement’s completion and the keys are usually given after settlement takes place.

Why a longer settlement?

A longer settlement allows the buyer to save up some more money as a buffer – such as using six months to store away as much as possible. This is particularly the case for upgraders who are dealing with a smaller mortgage currently, first home buyers who are paying low levels of rent or living at home and investors who are adding to their portfolio.

The additional funds can be saved for renovations, furnishings or anything else as required.

The vendor may prefer a longer settlement if they are still looking for a property to purchase, are waiting to get past a significant event in their own lives (such as relocating overseas) or similar. There are many reasons for this option.

A longer settlement may also benefit the buyer in that any market upturns will become instant capital gains when settlement is finally processed as, by this point, the price offer will have already been accepted. However, this may mean that the market can also drop or the vacancies in the area increase, before you have even had the opportunity to bring a tenant in.

Why a shorter settlement?

Vendors who have already found another home, and buyers who have sold theirs, may be keen to move in to the home quickly. This often encourages a shorter settlement, particularly if the vendor faces having to pay for both.

Similarly, some buyers will want to move in ahead of Christmas or a holiday period, particularly if it is a family buying, and a shorter settlement near these periods may be requested.

Shorter settlements can also suit those wanting to undertake work to the property as soon as possible, or who are expecting a positive cash flow from owning the home.

Other considerations

Regardless of the length of the settlement, damage can be done to the property during this time and it is wise to have something written into the contract regarding assessing ahead of time to ensure that the vendor rectifies any later issues.