Delayed settlements occur when the buyer or seller is not able to meet settlement date. Not only is a delayed settlement stressful, it can also cause you to incur expensive penalty interest if you are responsible for the delay.
Delays can be made less stressful through collaboration between everyone involved (that’s where a good settlement agent is invaluable), but it’s much better to avoid running into trouble in the first place.
Fortunately, settlement delays can often be avoided with the correct preparation and foresight. Here, I explain the four most common causes of a delayed settlement, and what you can do to avoid them.
1. Bank complications
Usually buyers need to take out a mortgage to buy a property, and often sellers need to discharge their previous mortgage – so settlement can’t occur until the bank is ready. As such, complications with banks are the most common cause of a delayed settlement.
There are a few reasons the bank may not be ready in time for settlement date: often the client hasn’t returned vital documents to them in time, sometimes administration errors are made by the banks themselves, and sometimes simply not enough time has been allowed for the banks to complete their part of the process.
To greatly reduce the risk of bank complications delaying your property settlement, ensure you return all documentation as soon as possible and allow plenty of time in the contract for finance approval and settlement.
2. Final inspection problems
The final inspection is the buyer’s last chance to bring up any issues with the house, so it can occasionally be the cause of disputes. In one case, for example, the buyer discovered a faulty gate that the seller insisted was working, and in other cases fixtures have been removed.
Such discoveries are often the cause of settlement delays, particularly when buyers consider the issue to be highly important to their purchase of the house.
To prevent these delays, sellers should do their best to ensure all plumbing, electrical fixtures and gas fixtures are in good working order prior to the final inspection, minimising the likelihood that the inspection will uncover any faults with the house.
3. Late documentation
Documents such as the Transfer of Land are vital to property transactions, so if they are not returned on time settlement may be delayed.
Too commonly, sellers or buyers do not return signed documentation in time for us to a) have the other party sign and b) submit it to the appropriate government body, potentially causing settlement to be pushed back.
To avoid delays, we’ll remind you to return documents as soon as possible – but you can help by informing us of any special circumstances that might make it difficult for you to complete them on time. For example, are you a FIFO worker? Will you be leaving the country shortly?
4. Subject sales
Sales that are subject to the sale or purchase of another property can lead to settlement delays if one of the property transactions hits a road-bump.
For example, when Ms Florence was buying a new home and the sale couldn’t proceed due to tenant problems, she faced either delaying the sale of her old home (and incurring penalty interest) or becoming temporarily homeless.
While these situations are harder to avoid and resolve, you can reduce the chance of them occurring by addressing the three points above.
Greatly improve the chance of a smooth and delay-free settlement by ensuring you complete documentation in a timely manner, identify potential issues early and leave ample time for settlement to occur.
Image by Earls37a via Flickr.