Opinion: Five Tips to Reduce Settlement Risks

It wasn’t by design. As the managing director of a marketing and communications agency in Sydney, I didn’t think I would find myself producing a specific communication program to reduce settlement risk for off-the-plan developers. It happened organically, for one simple reason: a strong need in the industry.

With changing market conditions including tighter lending policies and new restrictions on foreign investments, settlement risk has been higher than ever. The good news is, settlement risk can be successfully managed! Here are my top lessons from running residential settlement programs for off-the-plan property developers.

#1 – Keep in touch with your buyers and they’ll settle on time

In most instances, off-the-plan property buyers put their deposit down at least 2 years before completion of the project. During that period, their circumstances might have changed, they might have moved, changed their phone number, email address, or even their name!

We find that where no contact has been maintained with the buyer for a sustained period of up to 3 years, an average of 45% of buyers have incorrect or missing details on the first contact attempt and it can take up to 4 weeks with a dedicated team to track the buyers down.

This represents a major risk for those developers that have a high proportion of overseas buyers and are intending to only get in touch with their buyers when settlement is approaching.

Developers that start getting in touch a few months prior to settlement see much better results both in terms of their settlement conversion rate and in terms of the buyer’s experience and responsiveness. Better yet, developers that keep in touch all the way from exchange to settlement not only see their properties settling on time, they are also seeing more repeat purchases from their buyers.

#2 – Start a conversation about finance at least 4 months prior to your expected settlement date

Although buyers traditionally only get pre-approved by lenders within 90 days of settlement, starting the conversation a little bit earlier means they’ll be ready when the time comes. This also allows developers to assess the proportion of cash buyers, confident borrowers and potential financing problems ahead of settlement.

Across our most recent projects in Sydney, up to 5% of buyers mentioned their willingness to sell their property during our first call with them. Another 7% admitted to be unsure they’d be able to get approved for finance.

In recent months it is important to note that requests to rescind, change ownership details, and on-sell before settlement have been more frequent. These are variable depending on the project type, location and demographic of buyers. In particular, financing for FIRB buyers produces an ever-changing set of challenges.

Contacting buyers early enough gives ample time to guide the buyers through the settlement process and work towards assisting them with their situation. At completion, we find that the rescinding rate for the developers that started a conversation about finance early with their buyers is close to nil.

#3 – Do your homework on valuation and don’t be afraid to be a part of the process

Your settlement risk may come from your property valuations being at risk of coming lower than the contract price. This could occur due to the property having been slightly overpriced to start with, or having experienced a slower rate of growth than anticipated.

Knowing your market position early is critical in managing your settlement risk. Producing valuation packs to assist valuers in their assessment of the property has proven to be a very useful tool in my experience. For developers and their settlement team, this is an opportunity to study the current local market, review recent sales and comparable projects. For valuers, a valuation pack that is short, clear and to the point is essential to identify key areas of importance.

In some cases where the valuation comes in low, in order to settle, your buyer will need to come up with the extra funds to cover the shortfall. Having a strong relationship with the buyers and understanding their circumstances is key to facilitating that conversation towards a positive outcome.

#4 – Be there for your buyers and work with them

The majority of buyers want to settle just as much as developers do. Buyer’s settlement risk mostly comes from change in circumstances and change in legislation (i.e. borrowing limits, tax policies, FIRB laws). The latter often causes concerns and uncertainty amongst buyers.

Whilst building a relationship with the buyer, having a hotline for them to contact the developer on, and implementing consistent communication, developers have an opportunity to anticipate changes in buyer’s circumstances, mitigate their concerns and in most cases work around them.

In particular, we find that working with overseas buyers can be tricky and requires more effort when it comes to communication and management of expectations. Having regular contact with your buyers on their preferred channel and in their preferred language builds trust and credibility. 

If settlement is not in the cards for a few particular buyers, that’s alright. Having built a strong relationship with your buyers you can trust that when their circumstances will change, they will seek to buy from you again.

#5 – Commitment and focus on settlements pays off

A common situation we have seen in the market over the past couple of years is developers trusting real estate agents to be in communication with their buyers. Two main issues can present themselves here: the selling agent has moved on, and/or the agent sees supporting the developer in settling the property as a burden.

Due to the nature of the off-the-plan market where a long time lapses between exchange and settlement, it is very common to find that the selling agent has moved on. They might be with a new agency, they might have changed their details, or might have changed profession; they are just really hard to track down and engage in the settlement process.

Furthermore, selling agents’ main driver is sales. In most instances, assisting developers to provide customer service and guidance to buyers is very low on their priority list. Some selling agents do a wonderful job, however it is often not their core competence and most find it a burden. The risk here is that the agent may not be representing the developer’s brand in the best manner and the settlement management process may not be focused and streamlined.

Whether you are managing your settlement process internally or outsourcing it to an external settlements team, your settlement effort must be focused. This will ensure you provide the highest level of professional customer service to guide your buyers towards the successful settlement of their property.

With a dedicated settlement team and a strong settlement program in place, developers see their settlement risk decrease and settlements happen on time. Beyond that, they are strengthening their brand positioning in a market where a customer-centric approach and affirming your customer value proposition are more important than ever. This is critical to not only successfully settle a project but also to promote repeat purchases and build advocacy.


Marion Di Benedetto, managing director at Sierra Marketing. Marion specialises in simplifying and enhancing marketing and communications strategies for her clients. In the property space, Marion and her team developed a program to drive settlements, repeat purchase and advocacy for local and foreign developers through flexible marketing and communications strategies adapted to the developers and their buyers.

The Urban Developer will occasionally publish opinion pieces written by outside contributors representing a wide range of viewpoints. 

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