A simultaneous settlement is when both a property sale and purchase are scheduled on the same day at the same time.
Despite there being greater risks of a simultaneous settlement, it offers property owners a way to move directly to their new home without needing alternative accommodation, and allows funds to flow from the sale to the purchase.
When does simultaneous settlement apply?
A simultaneous settlement can help buyers who intend to sell an existing property and use the funds from the sale to purchase a new property.
What are the benefits of a simultaneous settlement?
The main benefit of simultaneous settlement is being able to minimise borrowing from financiers to buy a property. The surplus money from the sale can be directly transferred to fund the new property being purchased.
A simultaneous settlement means buyers can save on the expense of moving and accommodation costs.
How does a simultaneous settlement work?
The parties may agree to a simultaneous settlement occurring.
Following an agreement for a simultaneous settlement, a clause may be included in the contracts of sale requiring both transactions to be completed on the same day, and making each transaction conditional on the other.
The electronic transfer of funds in the conveyancing process is completed via the PEXA platform whereby a ‘link’ is created between the two PEXA workspaces to allow the flow of funds.
On the day of the settlement, the client’s current property will be settled, and the net proceeds of the sale will be automatically transferred to the purchase settlement workspace.
Risks of a simultaneous settlement
Reliant transactions
As the sale and purchase settlements are linked and scheduled to be settled simultaneously, there are higher risks involved.
If there are any delays in one of the simultaneous settlements, this will have the effect of delaying the other settlement as they are linked.
Financial penalties
Failed or late settlement will incur penalties in the form of default interest charged on the outstanding purchase price, plus legal and other costs.
Penalty rates are calculated from the date of settlement and can quickly compound to thousands of dollars within a matter of days.
In NSW, the rate of default interest is 10% on the outstanding purchase price. Within a week of the settlement date, the penalty for the purchase of a property worth $1.2M will be approximately $2,300.
Difficulties with living arrangements
Failure or delays with a simultaneous settlement can put clients in a difficult situation where they have to pay additional costs to removalists for rescheduling. The client may also have to make alternative living arrangements and storage arrangements at the last minute.
The importance of conveyancing for simultaneous settlements
The complexities of a of simultaneous settlement makes professional conveyancing non-negotiable.
An experienced conveyancer in Sydney will communicate with all parties leading up to the settlement, and oversee the PEXA process on the day of the settlement.
Engaging a conveyancer early on during the purchase consideration stage also helps clients understand whether a simultaneous settlement is the best approach for their situation. In some cases, two separate settlements to reduce the risk of both transactions being affected by a single point of failure may be a more suitable choice for the client.
