Understanding Financial Adjustments on Settlement When Purchasing a Property in NSW

When buying a property in New South Wales, the settlement process is the final step where ownership is officially transferred from the seller to the buyer. However, before settlement is complete, financial adjustments need to be made to ensure both parties fairly cover property-related expenses.

In this blog, we’ll explain what financial adjustments are, how they are calculated, and what you need to know before settlement day.

What Are Financial Adjustments in Property Settlement?

Financial adjustments ensure that property expenses such as council rates, water rates, and strata fees are fairly divided between the seller and buyer based on the date of settlement.

Why Are Adjustments Needed?

Some property expenses are paid in advance (e.g., council rates), while others are billed in arrears (e.g., water usage).
The seller has usually paid some of these costs already, and the buyer needs to reimburse their portion.
The buyer will be responsible for ongoing costs from settlement day onward.

Common Financial Adjustments in NSW Property Settlement

1. Council Rates

Local council rates are typically paid annually or quarterly by the property owner. If the seller has already paid rates beyond the settlement date, the buyer must reimburse them for the period they will own the property.

Example:

The annual council rates are $2,000, and settlement is on July 1 (midway through the financial year).
The seller has already paid the full $2,000 for the year.
The buyer needs to reimburse 50% ($1,000) to the seller for the period from July 1 to December 31.

2. Water Rates and Usage

Water rates are charged quarterly and include both fixed charges (set by the water authority) and usage charges (based on consumption).

The fixed portion is adjusted similarly to council rates.
Water usage is typically read at settlement, and the seller is responsible for their usage up to settlement day.

Example:

If the quarterly fixed water charge is $300, and settlement occurs halfway through the billing period, the buyer must reimburse the seller for their half ($150).
If the seller’s final water usage bill is $120, they are responsible for paying that amount.

3. Strata Levies (For Apartments & Townhouses)

If the property is part of a strata scheme, the strata levies (body corporate fees) must also be adjusted at settlement.

Strata fees are usually paid quarterly, covering building maintenance, insurance, and shared facilities.
If the seller has already paid strata levies beyond settlement, the buyer will reimburse them.

4. Land Tax (For Investment Properties Only)

Land tax does NOT apply to owner-occupied homes, but investment properties may be subject to land tax adjustments.
If land tax applies, it is calculated based on the portion of the year the buyer will own the property after settlement.

How Are Settlement Adjustments Calculated?

Settlement adjustments are calculated using the daily rate method:

Determine the total amount of the expense (e.g., annual council rates = $2,000).
Calculate the daily rate (e.g., $2,000 ÷ 365 days = $5.48 per day).
Multiply the daily rate by the number of days the buyer will own the property for the period that has already been paid.

📌 Example Calculation:

Council rates: $2,000 per year
Buyer settles on July 1
Seller has paid the full amount for the year
Buyer reimburses the seller for half the year (July 1 – Dec 31)
Adjustment amount = $1,000

The final adjustment amount is recorded in the settlement statement, and the buyer pays this amount as part of the final property settlement funds.

Final Settlement Statement

Before settlement, your conveyancer will provide a settlement statement, showing:

✅ Purchase price of the property ✅ Deposit paid ✅ Adjusted amounts for council rates, water rates, strata levies, and land tax (if applicable) ✅ Final amount the buyer needs to pay at settlement

This ensures the buyer only pays for expenses from the date they take ownership of the property.

How SL Conveyancing Helps You at Settlement

At SL Conveyancing, we handle all financial adjustments for you to ensure a smooth and accurate settlement process.

✔ We calculate adjustments accurately to ensure you only pay for your share of property costs. ✔ We liaise with councils, water authorities, and strata managers to get the correct figures. ✔ We review your final settlement statement to ensure everything is correct before funds are transferred.

Conclusion: Be Prepared for Settlement Adjustments

When purchasing a property, financial adjustments ensure that property expenses are fairly divided between buyer and seller. Understanding these adjustments can help you plan your final settlement costs and avoid surprises.

💬 Need help with your property settlement? Contact SL Conveyancing today for expert guidance and stress-free conveyancing! 🏡📜✨