What happens at settlement for my property?

Settlement is the final step of buying a property. It’s the point where your off-the-plans build is able to be walked through and admired. But before your name is put on the title as the proud new owner there are still a few things to do, including paying for it.

In this article you’ll learn what triggers the settlement date and who you need to engage in the 10-day timeline leading up to settlement. By the end of this article you’ll know exactly what you need to do to make sure settlement runs smoothly and on time.

How do I know when settlement is?

The trigger for knowing settlement is coming up for your new build is when the later of Code Compliance Certificate or Title is issued. Once these are issued, your Solicitor will provide you with the settlement date. 

Normally you have 10 working days until settlement, but this could be as short as 5 or 7 working days. Make sure you check your Sale and Purchase Agreement for the number of working days you have before settlement.

Considering all the things that need to be organised, the timeframe to settlement can be alarmingly short. So, it’s a good idea to talk to your developer about their timelines so you can prepare in advance.

Who tells me when the formal inspection is booked?

For Opes investors, your Client Relationship Manager will tell you when the Final Inspection is booked. But because you will have received monthly updates on the build’s process, it is likely you will already be expecting the news.

The notification email is copied to your Mortgage Broker and Property Manager. That’s because both these people have important roles to play at this time (but we get to that further down).

Candice from Opes says the team starts “harassing” the developer for dates once they know the completion date is looming.

Some delays are expected, and often inevitable, especially when raw materials don’t show up or if a build is awaiting resource consent. This is particularly true for builds in Auckland.

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Regardless, Candice says any delays should be managed and shouldn’t overrun the contract’s sunset clause.

Once the Final Inspection is completed, the developer usually makes contact the same day.

The letter, or document, will usually say something along the lines of: “Good news, the property has passed its council inspection.”

A Code Compliance Certificate (CCC) will be issued following this inspection “pass”. The length of time it takes to issue a CCC varies widely between councils. For example, in Rolleston (Canterbury), it’s the next day. In Auckland, it’s up to 20 working days.

For non-Opes investors, the developer will also notify you when the final inspection is booked and the results of the inspection.

More from Opes:

• 3 steps to handle long settlements for new builds (Article)
• What happens in due diligence for an investment property? (Article)
• What should I look out for in a pre-settlement inspection for a new build? (Article)

What is a code compliance certificate?

A Code Compliance Certificate (CCC) is a document issued under Section 94 of the Building Act 2004, which basically says building work matches the building consent given from council.

Put simply, it’s a formal statement saying the property that’s been built is what it promised to be.

If there are some things in the final product that differ from what was originally consented, the developer will have to make amendments.

For example, one of the properties Opes recommended to investors in Auckland, needed all the vanities changed because they didn’t match the initial sale and purchase.

What happens if there is no title?

Currently, the standard sale and purchase agreement we use at Opes states that settlement is 10 working days following the Code Completion Certificate or issue of Title.

Title is the legal description of the land the property is on, along with a record of who owns it.

Most of the time a title is issued well before we get to settlement. But not always.

For example, in Rolleston, when the land the development will be built on is purchased a title is issued before the build is begun.

But say, in Auckland, when developers build on a subdivision, the title process starts once the slab is down. That way the developer knows the boundaries for each parcel of land and can then apply for title for each unit.

So, the 10-day settlement timeline starts from either the day the CCC or the title is issued - whichever comes later.

What do I need to organise in the 10 days prior to settlement?

So the building is finished, Final Inspection complete, the Code Compliance Certificate and Title is issued, and now you have 10 days (generally) before you pay up.

Here’s exactly what you need to do to get ready to settle on the property.

Mortgage broker

First things first, you need to get back in touch with your mortgage broker. In an ideal world, they will have been kept in the loop at every point of the process so they won’t be surprised when you call.

Yes, you’ve already talked to them a lot during due diligence, but your preapproval has likely expired during the time it has taken for the build to be completed.

In some cases, your preapproval may last for 3 months, while construction can take 2 years. So you need to go back to the bank to get the funds approved.

Candice says some mortgage brokers panic because it’s a short amount of time to turn around the funds.

So, you will need to go over your application form and check your financial situation hasn’t changed drastically since your first application.

For example, if your income hasn’t changed but you’ve had two kids and decided to get that new car, you may now struggle to get the funds approved.

This means going through the lending application process again, including providing copies of bank statements and payslips.

Valuation

A mortgage broker will also need a Valuer's Completion Certificate. A registered valuer is the eyes and ears of the bank and its certificate basically says: Yes, this property is worth “X” amount and is ready to be lived in.

The mortgage broker takes this, along with your updated loan application, and sends it to the bank’s approvers.

This process needs to start well before CCC is issued. That’s because it might take 7 to 10 days before the valuer can view the property, and then it might take 5 days for the valuer’s report to come through.

Then, you still have to factor in the time it takes the bank to consider the application and give their approval.

Before you know it, you may run out of time. Again, that’s why you want to get all these balls rolling once you know the council’s inspection is booked.

Pre-settlement inspection

Before you pay for the property, you’ll probably want to know that you’re getting what you pay for.

This is why it’s important to do a pre-settlement inspection and a defects check. This is your chance to walk through the property to see the near-finished product, and to note down anything you are not happy with.

If you’re an Opes investor, we’ll organise this and arrange for a Building Inspector to come and do the defects check for you. Otherwise, if you’re buying directly off a developer, you’ll liaise with them. Candice highly recommends using a Building Inspector to complete the defect check for you as they have the skills, knowledge and tools to identify structural and cosmetic issues. These are then put into a detailed report which you can give to the developer for remedy before settlement.

In Opes circles, this pre-settlement inspection is called “snagging”, because defects will be identified with a red sticker or coloured tape.

While the council’s final inspection checks for things like insulation, drainage and the roof, it won’t check the finer details.

So you’ll tend to pick up on things like if the letterbox has the right numbers on it, or if the toilet seat is loose. These are the things you or your Building Inspector will spot at inspection.

If you are still unhappy with a few aspects of the build at settlement, you can either: retain some funds to make sure the builder returns and fixes them; you make an adjustment in the price; or insist they are fixed before settlement.

Candice says the property won’t look its best at the pre-settlement inspection because the property won’t have had its final clean, but it is really nice to be able to see and touch the end project.

Logistics around how the home works are also covered during this walk-around. For example, how does the keypad lock work (if there is one) and where are the garbage bins kept.

Chattel valuation

An important step not to be missed during this process is getting a chattel valuation.

If it’s not nailed down, glued in, or directly part of the building, it’s a chattel and you can depreciate it so you pay less tax. This includes letterboxes, carpets, curtains, light fittings, appliances and even driveways.

Over time, parts of rental properties become worn out and need replacing. These parts are called chattels. And the decrease in value is called depreciation.

Investors who depreciate the chattels of their rental properties can use this as a way to minimise the amount of tax they pay.

For instance, if you own a property that has $50,000 worth of chattels, you could save as much as $16,500 in tax (over time), if on a 33% tax rate and depreciating the chattels correctly.

Here at Opes, we recommend using a company called "ValuIt".

Insurance broker

You should also talk to an insurance broker. This is only extra important if less than 5 properties are in the development.

Why? Because properties in a development of 5 or more will have one insurance policy assigned to the group as a whole and there is no wiggle room to change it.

There can be a reasonable amount of confusion about this, with investors thinking because they are buying a fee-simple title they can choose the insurer when in reality they can’t.

But this one-for-all policy is for a good reason and usually works out to be a bit cheaper on a group discount.

You will need to do this to find out who the insurer is to get your landlord’s insurance. Increasingly if you want landlord’s insurance then you need to use the same insurance company as the one insuring the rest of the building.

Candice says if you aren’t getting in touch with an insurance broker then get in touch with the residents’ association or body corporate.

Property manager

Your property manager is someone that needs to be kept in the loop at all times around settlement, because you don’t want any mucking around when it comes to finding tenants.

Getting the property filled should be top of mind for any investor buying a property that doesn’t already come with tenants. Ideally, you want to settle on Friday, and have tenants move in on Saturday.

To make that happen ask your property manager to talk to the developer as soon as you know the council inspection has been booked.

That’s not just so they can begin advertising the property, but so they can also organise the Healthy Homes and meth test.

But this can be a juggle when it’s a new-build.

Yes, you can rent the property without the tenant seeing it, but videos and photos are only so much of the story. Photos should attract a person to the property, but you do want the tenants to see it for themselves.

But the developer does not have to allow access – because they still own the property – so this isn’t always possible. That’s why you want your property manager and developer to work well together, because often the developer will allow it.

One final thing to be aware of with new-builds – sometimes delays crop up and the settlement date can be pushed out by a couple of weeks.

If you already have a tenant signed up for the property and the settlement date is pushed out, then you’re responsible for housing that tenant regardless. That can mean paying for their motel accommodation.

So, the key message is that you don’t want to advertise the property too early either. Your property manager can advise on how best to manage this.

What happens on the day of settlement?

Settlement is when the property officially changes hands.

The bank will advance the funds to your lawyer, who handles the money and transfers it to the vendor’s solicitors. Once they have done that they get the title put in your name.

The solicitors will confirm the transaction has gone through. Congratulations, it’s a done deal!

Your property manager – often Opes Property Management for Opes investors – will collect the keys and start their job of managing the future tenant. Hopefully, they already have one.

At this stage, Managing Partner Andrew Nicol says the investor should take this time to enjoy a large well-deserved glass of champagne.

Write your questions or thoughts in the comments section below.