As you no doubt know, buying or selling a property has a number of checks and balances as well as moving parts occurring at the same time.
While the strategic selection of property remains paramount for investment success, once a contract has been signed, more hard work begins behind the scenes.
If you’re a buyer, it is when your mortgage broker diligently works towards unconditional finance, as well as preparing for settlement.
Likewise, your legal representatives will be running relevant searches on the property as well as preparing the official ownership transfer from the seller to the buyer.
For the seller, the process is generally the same, apart from it involves the sale, rather than the purchase, of the property.
The thing is, while most property purchases allow for 30 to 60 days for settlement to take place, sometimes more time is needed.
In fact, there are three common reasons why settlement might be delayed.
1. Bank delays
It might sound like we are unfairly targeting banks, but the truth of the matter is that settlement is often delayed because of finance issues.
Now, this could be because the lender is running behind in processing loan applications and simply can’t meet the settlement deadline.
Other times, however, it is because the buyer or seller hasn’t completed the necessary paperwork in a timely manner, which has left the bank scrambling to do their bit.
Sometimes, there could be legal issues because of an error by the buyer or seller, such as not signing or initialling the contracting correctly.
One way to circumvent this happening is to work with a proficient mortgage broker who will ensure all paperwork is signed before necessary.
2. Property problems
Every buyer has the right to inspect their property before settlement – although many make the mistake of not doing so.
However, a pre-settlement inspection is an opportunity to see that the property is in the same condition as when the contract of sale was signed.
Unfortunately, sometimes the property has been damaged, either maliciously or perhaps from a natural disaster, which would allow the buyer to delay settlement.
I have a friend whose property was damaged by a storm the day before settlement, however, was able to secure written agreement from the vendor for repairs to be made so the transfer could take place as scheduled.
That said, if the pre-settlement inspection highlights serious issues with the property, it is common for settlement to be delayed until the repairs have been rectified or financial compensation has been agreed upon.
There is not much you can do to prevent damage to a property during settlement, apart from keeping open communication between both parties and attending the pre-settlement inspection.
3. Not able to settle
Another common problem arises when one contract is dependent on the sale of another property.
Let’s say the buyer needs to sell their current home to finance the purchase of the new one but has not been able to do so in the agreed timeframe in the contract.
In this instance, the seller (depending on the state and territory) could cancel the contract and potentially receive financial compensation from the buyer if they are unable to sell the property again for the same price.
What can happen is the buyer and seller agree to extend the settlement period to allow the buyer more time to sell their current property.
Of course, such a situation can’t go on forever, so at some point if the buyer is unable to settle, the contract will be cancelled.
One way to prevent this happening is to sell before buying – even if it means you might have to rent for a few weeks or months.
Another strategy, popular with sophisticated property investors, is to draw upon the equity in their portfolios to finance the new property.
That way, they don’t need to sell at all and are creating property wealth by increasing the size of their portfolios.
Conveyancing laws vary from state to state, so it’s essential that you obtain expert advice from in your local jurisdiction.
By working with a team of professionals, home buyers and investors not only have access to investment-grade properties but can also prevent unnecessary delays which can be stressful and costly.
