Settlement Process

Settlement Funds

To purchase the property, there's a somewhat complex web of financial transactions that take place.

1. On sale deposit - 10%: As soon as you go conditional or unconditional, you are required to pay a 10% deposit (this can be adjusted by prior agreement) directly to the vendor via the agency trust account. If the conditional agreement falls through, this is returned to you. If the sale is unconditional, the money is transferred to the vendor as final, and you are obliged to complete the sale.

2. Lending Amount - 80% (give or take): On settlement day, your bank will transfer the agreed lending amount from their account to your lawyer's trust account. Your lawyer will then send this to the vendor's lawyer for settlement.

3. Your remaining contribution: You must transfer the remaining balance from your account to your lawyer's trust account for them to send to the vendor's lawyer together with the bank lending.

Let's use an example. Say you purchase a $1,500,000 property, with a 20% LVR deposit at auction. This means the bank will lend $1.2M (80%), and you must provide 300K (20%). On the fall of the hammer, you will pay a 10% deposit as required in the S&P to the vendor - so this is $150,000. On the settlement date, the bank will move the 1.2M, and you need to move the remaining 10% - so another $150K. All together this makes up the 1.5M that the vendor recieves for the property - 150K deposit, and $1,350,000 final payment.

Pre-Settlement Inspection

You are allowed one pre-settlement inspection prior to taking possession of the property. Arrange this at least a week before the settlement date to give vendors the chance to fix something. Take a friend with you to the inspection to have an additional pair of eyes. The purpose of this inspection is three things:

1. Ensure everything is as it was since you won at auction / signed the contract (e.g. no new holes in the walls, the roof is still there, etc).

2. Checking the chattels work, if they worked on purchase date.

3. Ensuring the vendor has met any terms that’s listed in the contract.

If something is wrong, contact your lawyer, who will give you several options.

What if something is wrong?

There can be issues at the pre-settlement inspection - for example, the dishwasher may not be the same one you saw at the open home, or chattels missing, or even junk on the property! Contact your lawyer to resolve these issues.

It's very likely that settlement will proceed with funds with-held for rectification.

Settlement Day

Settlement is the process of transferring ownership of the property to you. On settlement day, there really is nothing for you to do, except go admire your purchase. The house settlement process will be managed by the lawyers, and the keys will be released by the real estate office or lawyer. It can be an amusing process because the house is yours, but the key can be driving all over Auckland. Usually the real-estate agent will hand-deliver the keys to you (if they’re any good), or you can pick it up from your lawyer or the agency office.

What happens if I cannot settle?

If you are not able to settle on settlement day, this is a very serious problem and you need to contact your lawyer proactively and immediately. Generally, the vendor will be able to keep your deposit, and also claim damages - either forcing you to settle on the deal + costs they incur in forcing you to do so, or charge all the costs of re-listing, opportunity losses, and other costs. Basically, once you sign the deal, you cannot walk away.