One of the clunkiest aspects of the property selling process is set to be streamlined under new laws coming into effect next month.
Paper-based settlement, a process virtually unchanged for a century, will soon be completely digitised in Australia’s key real estate markets, allowing lawyers, conveyancers and financial institutions to complete settlement online instead of in person.
Starting October 1, all property transfers in Victoria must be lodged through an electronic network. Property transfers in Western Australia will go online by December, and New South Wales will follow suit in July next year.
A process that previously could take days or weeks will be completed in minutes.
The only electronic lodgement network currently in operation is PEXA, which is backed by the governments of Victoria, Queensland, NSW and WA, as well as the big four banks.
Old-fashioned settlement explained
Traditionally, settlement has involved lawyers for vendor, buyer and financial institution meeting to transfer ownership of property and funds from one party to the other.
The process involves reams of paperwork, which according to PEXA chief customer officer Lisa Dowie creates the risk of errors and delays. By digitising the process it is hoped to eliminate both.
“In the paper world, lawyers, conveyancers and banks are sitting in respective offices preparing for a settlement, dealing with a lot of paperwork, getting signatures from buyers and sellers on documents,” she said.
“Nobody sees these documents until they turn up in the settlement room on the day of settlement. On that day, in the paper world, they can discover a lot of errors, mis-spelled names and numbers and signatures not in the right places.”
A report by PWC found one in five paper settlements were delayed, and 25 per cent of customers affected by a delay suffered financially as a result.
“That could mean furniture trucks are waiting outside houses, and people can’t move into their home,” said Andrew Jarrett, managing director of First Class Legal.
“There is a huge cost if the settlement does fall over, not just the removalists, but perhaps storage, accommodation and interest on the purchase you can’t complete.”
What is PEXA and how does it work?
The PEXA platform allows settlement to occur in a digital workspace, where participants can verify information well in advance, significantly reducing the risk of delays due to errors.
“Everybody can see that information, so it creates a lot of transparency for lawyers and banks,” Ms Dowie said.
The key benefit for vendors is faster access to the proceeds of the sale, with funds transferred electronically rather than through bank cheques, which can take several days to clear.
“We’re transferring those funds in real time so the settlement happens immediately,” Ms Dowie said.
Moving conveyancing online can reduce errors and delays. Photo: iStock
The platform allows buyers to become registered on the title of the property they are purchasing within minutes, and takes a lot of stress out of the process.
“Those purchasing have a lot more certainty around the settlement taking place and their ability to move in,” Ms Dowie said.
E-conveyancing also allows more flexibility for both buyers and sellers, according to Mr Jarrett.
“We have clients that are signing contracts electronically via their iPad,” he said. “Some of those clients are signing contracts overseas, and that is giving them the power to transact that wasn’t previously possible.”
How is the system secured?
Transacting digitally requires significant security protocols, especially considering the large sums involved with real estate, according to Ms Dowie.
“We’re integrated with major banks, the reserve bank and the land registry, so you can imagine the security requirements to integrate with those companies is huge given that property is the biggest asset class in Australia,” she said.
“Every lawyer and conveyancer who signs off in PEXA has a digital certificate and dual-factor authentication. Every time they sign off they have to insert a token and a specific PIN so nobody can sign on their behalf.”
Vendors of residential property are also protected for up to $2 million in the event of funds being misdirected through fraud, providing details have been entered correctly.
“PEXA has just launched a residential seller guarantee,” Ms Dowie said. “That’s ensure the seller is protected around everything that occurs.”
When does e-conveyancing begin?
Starting October 1, all property transfers in Victoria must be transacted through the PEXA platform, but according to Ms Dowie, it will be business as usual. “Nearly 60 per cent of all land lodgements are completed by PEXA already,” she said. “We’re already in really great shape.”
From December 1, all transactions in WA must be lodged through PEXA. In NSW, standalone transaction where no bank is involved already must occur through PEXA, but all remaining transactions will use the platform from July 1 next year.
In Queensland and SA, many transactions already go through the platform, although no date has been set for all transactions to move online.