Sale-Conveyancing-Step-6

SETTLEMENT / COMPLETION

Summary of what we will learn in this webpage:

• What do we expect to receive from the purchaser’s solicitor about 2 weeks prior to the day before Settlement
• As a vendor, we expect to receive the Settlement Adjustment Sheet, and its supporting s603 and s66 certificates
• We go through how to work out the Settlement Adjustment Sheet, and therefore
• How much is the vendor going to put in his pocket from the sale of this property

Step 6:

1) A day or 2 before settlement, we would receive the loan payout figure from the lender. This payout figure is the amount of loan that the vendor still owes the bank and this amount needs to be paid on settlement day for the lender to discharge / release the vendor from the loan.

2) Normally a couple of weeks before till 3-4 days before settlement, we would also receive from the purchaser or the purchaser’s solicitor a settlement adjustment sheet and its supporting s603 and s66 certificates.

s603 is a council rates certificate, it advises the council rates payable. 

s66 is a Sydney Water rates certificate, it advises the water rates payable.

3) If this is a paper settlement (ignore this step if it is an electronic settlement): a few days before settlement, we would ring up the lender to ask if it is ready to discharge the mortgage on a particular settlement date, and if it is, we would book a settlement venue, date and time. Then we would ring up the purchaser’s solicitor to book for the same venue, date and time. (For example, the physical settlement venue chosen could be SAI Global Sydney, on a particular date at 2pm.)

When ringing the bank, we also need it to tell us what the loan payout figure is for that settlement date. Normally, the bank can only confirm the loan payout figure one or two days before settlement. The bank should also tell us how it wants this loan payout to be drawn, i.e. bank cheque drawn should be payable to who? Say if the lender is Westpac, most likely it’ll want its bank cheque drawn payable to Westpac Banking Corporation.

How to work out the final amount a vendor is going to receive:

(Settlement Adjustment Sheet)

• Council Rates, s603 certificate:

The below image shows the middle portion of the sample s603 certificate. In this case, the council rates for this property from 1 July 2018 to 30 June 2019 is $405 + $25 + $931.35 = $1361.35. Rates outstanding is $1020.90.

Normally instead of working out the yearly rates, we ring the council, ask for the rates section, and we would ask what is the rates outstanding and what is the yearly rates, and sometimes the current quarter’s rates. These yearly rates or current quarter’s rates will be used in the settlement adjustment sheet.

• Water Rates, s66 certificate:

Next, the below image shows most of what the sample s66 certificate looks like. In this case, the service charges for the quarter from 01/10/18 to 31/12/18 is $191.50. Water rates outstanding is $194.22. Normally, we would get a verbal update by ringing 1300 361 369, as the water rates outstanding may have changed since this certificate was ordered. It is a computer-generated verbal update, we just need to key in the property number and a computer-generated voice will provide updated information. The quarter rates of $191.50 will be used in the settlement adjustment sheet.

The Settlement Adjustment Sheet, based on the above s603 and s66 certificates figures would look like:

Such an example of the settlement adjustment sheet, the vendor would receive from the purchaser or the purchaser’s solicitor at the latest one to two days before settlement.

Assume in this case that this property is sold for $770,000 and deposit received on exchange is 10% at $77,000. Hence balance outstanding is $693,000. However, this is not what the purchaser will pay on settlement, because s/he still has to pay his portion of council and water rates from the date of settlement.

Assume also our settlement date is 15-Dec-2018.

Let’s look at the panel for Council Rates. $1,361.35 is the council rates from 1 July 2018 to 30 June 2019, taken from the s603 certificate or by ringing the council. The purchaser would have to pay his share of the council rates from 15-Dec-2018 to 30-Jun-2019, because from 15-Dec-2018, s/he is the new owner of the property and hence liable to pay council rates from this day on; i.e. 197 days out of 365 days of $1,361.35 = $734.76. This amount would have to be added to the balance outstanding of $693,000.

Likewise, for the Water Rates panel. The current quarter water rates from 01/10/18 to 31/12/18 is $191.50, taken from the s66 certificate. The purchaser has to allow for water rates from 15-Dec-2018 to 31-Dec-2018, by virtue of him being the new owner; i.e. 16 out of 92 days of $191.50 = $33.30. Again, this amount would have to be added to the balance outstanding of $693,000.00.

So, $693,000.00 + $734.76 + $33.30 = $693,768.06. However, this is still not the final amount payable by the purchaser.

Now, let’s look at the Water Usage Panel.

From the s66 certificate, we see that:

Last Meter Date of Reading was held on 03/10/18.

Average Daily Usage is 0.533kL.

Costs is $2.08 per kL.

Which means the vendor has to allow for water usage between 03/10/18 to the settlement date of 15-Dec-2018, since s/he is the owner till 15-Dec-2018 and liable to pay for his own water usage; i.e. 73 days at 0.533kL per day at $2.08 per kL = $80.93.

Next, say the Title Search of this property shows that there is a mortgage. The lodgement fee currently charged by NSW Land Registry is $141.60 to register a discharge of mortgage. Since it is the vendor’s mortgage, it is his responsibility to pay for this lodgement fee of $141.60. Of course, if there is no mortgage on this property, then the vendor wouldn’t need to pay this $141.60 for lodgement of discharge of mortgage.

So, vendor needs to pay for $80.93 (water usage) + $141.60 (lodgement fee for discharge of mortgage) = $222.53

Finally, the purchaser needs to pay the interim figure $693,768.06, minus what the vendor has to pay $222.53, to come up with a final payable figure of $693,545.53.

So at settlement, the purchaser needs to fork out $693,545.53.

The vendor however does not get this full amount of $693,545.53. Why? Remember those outstanding rates in the s603 and s66 certificates? Those are amounts payable by the vendor which has not yet been paid. So it is the vendor’s responsibility to pay out these outstanding amounts, for the s603 certificate, council rates outstanding is $1020.90 and for the s66 certificate, water rates outstanding is $194.22.

So assuming the loan payout figure is $250,000, the vendor would get in his pocket $693,545.53 – $1020.90 – $194.22 – $250,000.00 of loan payout = $442,330.41.

If this is a paper settlement, after we have confirmed the calculation in the settlement adjustment sheet, we will issue what lawyers call a “cheque direction” to the purchaser’s solicitor. The “cheque direction” tells the purchaser’s solicitor how the vendor wants his monies. In this example, the vendor would email the purchaser’s solicitor the following “cheque direction”:

      – Bank cheque payable to “Cumberland Council” for $1020.90

      – Bank cheque payable to “Sydney Water” for $194.22

      – Bank cheque payable to “Westpac Banking Corporation” for $250,000 (assuming vendor’s loan is with Westpac)

      – Bank cheque payable to [Vendor’s name] for $442,330.41

On settlement day, the bank’s representative, the purchaser’s solicitor or his settlement agent, and us or our settlement agent, will arrive at the settlement venue at the time we all agreed.

The discharging bank, in this example Westpac, will hand over a “Discharge of Mortgage” form together with the “Certificate of Title” to the purchaser’s solicitor, in return for a bank cheque made payable to them by the purchaser’s solicitor for the discharge of the loan.

We will hand over the “Transfer” form (remember, this form was mailed to us by the purchaser’s solicitor for the vendor to sign) in return for the bank cheque payable to the [Vendor’s name]. We will also receive what is called an “Order on the Agent” if we have engaged a real estate agent to sell this property for us. (An “Order on the Agent” authorises the real estate agent to release the purchaser’s deposit monies which has been held in the real estate agent’s trust account to the vendor. (A sample “Order on the Agent” can be found here.)

As for the bank cheques for Cumberland Council and Sydney Water, we sight that the amount payable on these cheques are as per “cheque direction” and hand them to the purchaser’s solicitor.

By this time, with payment received, the vendor or the vendor(s) real estate agent (if one is engaged) can release the keys to the purchaser and the vendor can get the deposit monies from the real estate agent on production of the “Order on the Agent”.

If this is an electronic settlement, all these exchanges of monies and documents will happen electronically. There is no need for physical settlement.

This completes our conveyancing step by step guide

on the sale of a house in Sydney and NSW!

(Note 1: you may have realised that we have not included any screenshots or description on how to use PEXA. This is because PEXA currently is only available to lawyers and conveyancers. There is no point in showing how to use PEXA when you can’t even log in and see for yourself how it works.)

(Note 2: even though you may know how conveyancing process in Sydney/NSW works now, it is advisable that you refer to Revenue NSW advice on the risk of doing your own conveyancing. In short, Revenue NSW does not recommend that you do your own conveyancing because it comes with significant risks.)

If you consider it is not worth the risk to do your own conveyancing on a property that’s worth $500,000+ or $1,000,000+ or much more; or if you find all these conveyancing steps a bit too labourious and cumbersome; you can engage us to do your conveyance from start to finish – from preparing the full contract to settlement where you receive the net proceeds of your sale in the comfort of your home. Please feel free to contact us!

• Why risk? Because the house you are selling costs $500,000+ or $1,000,000+. Conveyancing fee charged by a professional solicitor on such a sale is now rarely more than $2000. Comparing the risk of selling $500,000+ or $1,000,000+ to a conveyancing fee of say $1250; objectively speaking, is $1250 really a cost you should save on?

• More importantly, solicitors are covered by insurance. In the unlikely event that something does go wrong, you are protected.  

Conveyancing Process for buying