Signed a Contract of Sale? 5 Steps to Settlement Guide

Have you just signed a contract of sale on a home? Congratulations—but the process isn’t over yet. Between signing the dotted line and picking up the keys, there are critical legal and financial hurdles you must clear to protect your deposit and ensure the property legally becomes yours. In this guide, written by an expert mortgage broker in Brisbane, maps out exactly how to get from contract to settlement without the stress.

Let’s dive in!

There is always a deposit payable to the real estate agent when you have signed a contract of sale.

But did you know the deposit is paid in two parts? 

The first part is a holding deposit (also called the initial deposit), which is usually a small amount between $500 and $2,000 (or up to 0.25%) to secure the property.

The holding deposit shows that you are serious about buying the property and needs to be paid within 3 business days of signing the contract of sale. If you do not pay the holding deposit, your signed contract can be considered void!

The second part is the balance deposit, which is more substantial. It is either a set percentage of the purchase price (like 5% or 10%) or a fixed amount, like $25,000.

The balance deposit is paid once your finance and other conditions have been met.

This deposit is paid directly to the real estate agent’s trust account by Electronic Funds Transfer, Cheque or Bank Transfer.

The deposit holder’s trust account details are on page 3 of the standard signed contract of sale in Queensland. The real estate agent is usually the deposit holder.

Once you pay your holding and actual deposit, you need to request a receipt from the real estate agent to confirm this has been paid.

The real estate agent will hold the deposit in their trust account until settlement, and the amount you pay in deposit will reduce how much you need to pay at settlement.

For example, if your purchase price is $500,000 minus the bank loan of $450,000 and you had paid a $10,000 initial deposit, you only need to pay the deposit balance or $40,000 at settlement.

Read More: Step-By-Step First Home Owners Guide Brisbane

This is probably the single most important step that gets missed by homebuyers.

Did you know that in Queensland, the risk of the property passes to you at 5:00 pm on the first business day after the contract of sale is signed?

That’s right—it does not wait until settlement.

This means if the house accidentally burns down or is damaged by a storm during the settlement period, you are still legally required to go through with the purchase.

(Note: This is different to other states like New South Wales and Victoria, where the risk generally passes at settlement. However, in Queensland, you are on the hook almost immediately).

So, what do you do?

You need to arrange a Cover Note for Building Insurance straight away.

Most insurers will issue a cover note over the phone immediately. This is a temporary policy that covers you for the settlement period (usually up to 90 days) until you officially own the home and full insurance kicks in.

Action Step: Call an insurer right now and ask for a cover note for the property address. It takes 10 minutes, costs very little (sometimes it’s even free for existing customers), and it protects your future home from day one.

Now it’s time to get in touch with your Mortgage Broker.

Don’t worry; this happens sometimes. Did you know that in 2018, over 40% of home loan applications were rejected by banks? 

You have 2 options when your home loan has been declined by a bank:

Read More: First Home Buyer Loans

Building and pest reports are what we consider the most common and almost mandatory cost when buying a house.

These reports look at the building’s structural soundness and pests to ensure you aren’t flatting with termites or white ants.

A typical building inspection for a 4-bedroom home can cost $400-500, and a pest inspection $200-300. The good news is that you can save a few hundred dollars by getting a combined building and pest report for around $500-600.

With white ants, termites, or even dampness, you can’t physically see them from the outside.

Building & Pest Inspectors (who in Queensland are generally licenced builders) will inspect under the house, in the roof and use their own technical equipment to check for damp and other issues.

“I can say that Building & Pest reports have saved me over 5 times from buying complete dumps of properties. I’m not kidding when I say these reports have saved me over 5 times.

In one year, I literally spent over $2,000 on reports for different properties before finding the right place, but I’m glad I did!

One of the properties had concrete cancer. Another had issues with flooding and water leaking through the walls, which were going to cost the new owner $9,000 to fix. Another had termites in a tree in the backyard and evidence of old damage to the roof.

This was all stuff I wouldn’t have found out without using a building & pest inspector.”

Not to worry, just let your solicitor know there is an issue with the building & pest report, and they can terminate your contract.

If you had signed the contract subject to a building & pest report, you will get a full refund of your deposit. 

It is important to remember that a Building & Pest report is not a “to-do list” for the seller to fix every loose door handle or cracked tile. You are looking for major structural defects or safety hazards that would cost thousands to repair.

Here are the most common “deal breakers” that often justify terminating a contract or negotiating a massive price reduction:

Note: If your report uncovers any of these, speak to your solicitor immediately. They can advise if these meet the threshold to terminate the contract under the Building & Pest clause.

Read more: Renegotiating house price after building inspection

At this point, your Mortgage Broker will arrange a time to sign your loan documents.

You will need to sign your Home Loan Contract, Mortgage (title) Document, Direct Debit Agreement and any other bank forms.

You should also contact your solicitor to confirm some important details, such as the date of settlement, whether any other fees are payable, and whether you need to arrange any cheques for settlement…

A few days before settlement, your solicitor will send you a document outlining the exact amount of money you need to transfer to finalize the sale. They often call this the “Funds to Complete” or the “Shortfall.”

Many buyers panic when they see this number because it is often higher than they expected.

This happens because you aren’t just paying the difference between the house price and the loan—you are also paying for government fees and adjustments on top.

Here is a real-world example of how the “Shortfall” is calculated:

Example Scenario:

= Cash Shortfall needed at settlement: $112,000

In this example, even though the “gap” between the loan and the house price is only $90,000 ($600k – $480k – $30k deposit), you actually need to provide $112,000 on the day to cover the extra costs.

Pro Tip: Make sure this money is sitting in a linked bank account ready to go at least 3 days before settlement. If the money is stuck in a term deposit or a high-interest account that is hard to access, it can cause settlement to fail.

One of the biggest shocks for homebuyers is finding out the final cheque they need to write is bigger than they thought.

You might assume that if you bought a house for $500,000 and paid a $10,000 deposit, you simply owe the remaining $490,000.

Unfortunately, it’s not that simple.

There are extra costs involved in the legal transfer of the property that will change your final figure. This is often referred to as your “Funds to Complete.”

Here is what you need to budget for:

When you buy a home, you take over the bills from the day of settlement. However, the seller has often paid the Council Rates or Water Rates for the whole quarter in advance.

Because you will be the owner for part of that quarter, you need to reimburse the seller for the days you will own the property. This is called a pro-rata adjustment.

Common adjustments include:

This is the big one. Stamp Duty is a state government tax charged on the transfer of the property title.

Unlike your deposit, which comes off the purchase price, Stamp Duty is an additional cost on top of the price. Depending on which state you are in, this is usually payable at or before settlement.

Your solicitor will work out all these figures for you in a document called a “Settlement Statement” a few days before settlement, so you will know exactly how much is required.

Moving costs might seem like an obvious one, but have you thought about getting the power connected and mail redirected?

Houses don’t have power connected unless someone is paying the bills…

So remember to plan ahead and shop around to see what deals you can get on your power.

With the increase in competition in Brisbane’s energy market, we’ve found that you can get any connection costs waived, provided you sign up for a 12-month contract. Phone around and see what you can do, but companies like Origin make this pretty easy when moving into a new home.

Redirecting your mail is pretty easy, too. Australia Post has details, but a word of warning—it takes them 3 days to set up the redirection. So try to do this before settlement!

Read More: Moving & Connection Costs when buying a home

You might be picturing a room full of lawyers in suits sliding cheques across a mahogany table.

In reality, settlement is now almost entirely digital.

Thanks to a system called PEXA (Property Exchange Australia), you do not need to attend a physical meeting, and neither does your solicitor. It all happens automatically online.

Here is the play-by-play of the digital exchange:

Just because the money has left your bank account doesn’t mean you can grab the keys at 9:00 am.

You only get the keys after the seller’s solicitor sends written confirmation to the Real Estate Agent that the funds have officially cleared in their account.

Real-world tip: This usually happens between 2:00 pm and 4:00 pm.

We always recommend not booking your removalist for the morning of settlement. If there is a slight banking delay (which is common), you will be paying removalists to sit in a truck while you wait for that “all clear” phone call.

Unfortunately, plenty of things can go wrong from the time you sign the loan contracts until settlement, which can cause massive delays. Some of these delays can be caused by:

Bank Problems: The bank might be delayed when they get your contracts back. They might be processing issues you might have missed, e.g., a signature, which can cause settlement to be pushed out by days and sometimes even weeks.

Final inspection issues:  Before the day of settlement, you’ll generally do a pre-settlement inspection. You will check out the property to make sure there are no holes in the wall and that they’ve fixed up any things they promised they were going to fix up. If the problems haven’t been rectified, this can cause massive delays in your settlement.

Simultaneous settlement:  The third problem we see all the time is if the sellers are trying to buy another property or refinance a loan on the same day. It’s called a simultaneous settlement. This means that you need to coordinate multiple parties to try and settle on that one day when you’re supposed to hand over the keys. This complexity can invariably cause massive delays with your settlement, which can really risk your deposit.

Late Documentation: The fourth thing that can cause some delays is late documentation. Simply missing a signature or if your conveyance your solicitor forgets a form or a bank document can cause issues. The banks won’t settle your home and, therefore, can delay settlement.  It’s not necessarily your fault, but it can happen all the time, and we see it so often.

So, what happens if your settlement is delayed, and what are some of your rights and things that you can do when it happens? Well, in this section, we will break it down by state because every state is a little bit different.

Note: This isn’t legal advice. You should consider your personal situation and speak to a lawyer. 

Queensland: Unfortunately, it’s one of the harshest states in Australia. In Queensland, one of two things happens. Number one, the seller will agree to extend your settlement, and it’ll be fine – you can push it back a couple of days if everyone’s pretty happy. Number two, which is the worst case, is if you’ve determined a settlement date on the contract, the seller can choose to terminate the contract altogether. That means that they can take your deposit. So, if you put down 5% or 10% of the property’s purchase price on the contract, they can actually take that if your settlement is delayed.

Western Australia: They’re a little bit more lenient than Queensland. They generally have a rule that gives you a three-day leniency on the settlement date. So, if you can’t make it on Monday, they might push it back three business days, but then they will start charging you penalty interest for every day that you’re late. Again, the conditions will depend on your contract, so check it out with your lawyer.

New South Wales: They will charge you penalty interest for every day that you’re late. Then, they can issue what’s called a notice to complete. This document says that you must settle on a certain date, or the contract will be terminated, and you’ll forfeit your deposit. The number of days in the notice to complete is usually about 14 days, so at least you’ve got a bit of breathing space there, but obviously, it is not a situation you want to get to, and you want to resolve quickly.

Victoria: In Victoria, it’s similar to New South Wales. They will charge you penalty interest, which can be up to 10% every day that you’re late. So you can end up racking up thousands of dollars in extra penalty fees that you wouldn’t otherwise have to pay if your settlement wasn’t delayed.

The final inspection is your last chance to check the property before you hand over the money. Once settlement happens, it is very difficult to get the seller to fix anything.

We recommend doing this inspection 24 to 48 hours before settlement.

Use this checklist to make sure you don’t miss anything:

Tip: If you find a new issue that wasn’t there when you signed the contract (like a hole in the wall from moving furniture), take a photo and send it to your solicitor immediately. They may be able to withhold a small amount of funds at settlement to cover the repair.

The short answer is no.

In a competitive property market like Brisbane, 21 days is WAYYY TOO LONG, and you could miss out on your property.

Finance clauses represent a risk for the property seller. If they accept an offer for a purchase with a 21-day finance clause, then they run the risk of you walking away from the contract on day 20. That means they will have to go back to the market or see if any other bidders are still interested in the property. The shorter the finance clause, the “safer” the offer is in the eyes of the seller since they won’t lose any momentum with the property sale if anything does go wrong with your application. 

When the property market is really hot (as we saw during the last couple of years), many buyers will submit an offer without any finance clause at all. So, if you want your offer to remain competitive (without risking financial losses), keep your finance clause as short as possible. 

If you do not have a pre-approval, we suggest a 14-day finance clause. Once you have a pre-approved home loan, you can even reduce it to a 7-day finance period. If you choose Hunter Galloway as your mortgage broker, we will let you know the best finance clause length for your situation.

Read More: How to Make an Offer on a House

Your finance clause is due at 5 pm on the date noted on your contract. In other words:

If you have finance due Wednesday, you have until 5 pm Wednesday to go unconditional on the contract and pay the balance deposit, or decide not to proceed and get your deposit refunded.

But what happens if your home loan isn’t approved by the time your finance clause is due, and you need to ask for an extension? According to First National Real Estate Agents, “approximately 70% of the contracts we receive every year with a 14-day finance clause require an extension, “so don’t worry—it is very common to ask for an extension on a house contract. 

To get a finance extension on a house contract, you need to:

The seller has options when it comes to extending the finance clause: they can either grant the extension, do nothing or terminate the contract.

In most cases, we find the sellers will extend the finance clause.

This is because they have spent the last 7 to 14 days waiting for your finance to be approved, and a simple extension of 3-4 days is a much better prospect than starting the clock again to find a new buyer.

A contract of sale contains information about all the parties to the contract, including their addresses and names. It includes the following: 

Normally, the special conditions are included in the contract of sale that can override the general conditions of the contract. Therefore, don’t sign the contract until you are fully aware of all the terms and conditions. The seller is required to attach the following with the contract of sale:

If a seller fails to include these things, the buyer has the right to cancel the contract within a certain period of time.

The Instruments Act 1958 states that a verbal agreement is not binding unless you honour a contract of sale in full.

Before signing a contract of sale, the seller is bound to provide the potential purchaser with the seller’s statement. Both parties sign each contract’s copy and exchange it through a real estate agent. The cooling-off period in Victoria is 3 days.

In New South Wales and Sydney, you cannot sell a residential property without signing a contract of sale. The seller of a strata scheme or a single freehold must also provide a valid non-compliance certificate, an occupation certificate, and a valid compliance certificate.

Moreover, the vendor and purchaser are under no obligation to honour the contract until they exchange signed copies. These copies can be exchanged in a face-to-face meeting or via mail. The cooling-off period in New South Wales is 5 days.

In Queensland, the cooling-off period is 5 days. For the contract to be valid, it should include the following information: If the purchaser terminates the contract during a statutory cooling-off phase, they will be bound to pay a penalty of 0.25% of the purchase price. So, if you terminate the contract for a $500,000 property, you will have to pay $1,250.

Therefore, we advise that you do a property valuation independently and seek legal advice regarding cooling-off rights and the contract before signing a contract. 

In Queensland, the buyer signs the contract first, and the seller only signs it if he accepts the offer. It becomes binding only after the buyer receives an acceptance notification. It is important to note that in Queensland, only lawyers can act as conveyancers.

In South Australia, a seller is bound to provide the buyer with a Form 1 Disclosure statement before signing the contract. After both parties sign the contract, they are bound by its terms and conditions. The cooling-off period in South Australia is 2 days.

In rare cases, a seller can choose to back out of a contract. What do you do then? Here are some of the steps a buyer can take when a seller backs out of a contract:

The biggest secret to getting your home settled easily is working with an experienced Mortgage Broker. Homeowners have a much higher chance of getting their loan approved quickly (and easily) if it is submitted to the right bank.

At Hunter Galloway, we are experts and would love to help you buy a home. We can help First Home Buyers and Existing Homeowners with getting settled quickly and easily.

Unlike other mortgage brokers who are just one-person operations, we have an entire team of experts dedicated to making your home loan journey as simple as possible. If you want to get started, please give us a call on 1300 088 065 or book a free assessment online to see how we can help.