When you exchange contracts, you are legally obligated to purchase the property. Contracts are exciting, but they can also be difficult to exchange. We look at how to exchange contracts, what to expect, and what to watch out for before the completion.
What does the term “contract exchange” mean?
The term “exchange of contracts” refers to the process by which two solicitors working on behalf of the buyer and seller exchange documentation to indicate that an agreement has been reached between both parties regarding the property sale.
How Do Solicitors Exchange Contracts?
Contracts are typically exchanged by both solicitors reading the contracts out loud over the phone (which is recorded by both of them) to ensure that the contracts are identical. They then immediately send the contracts to one another in the mail. This is referred to as the exchange.
If you’re in a chain, your solicitor will do the same thing; however, they will only release the contract to the solicitor acting on the other side if everyone in the chain agrees. That means that if one person pulls out or delays, everyone else suffers.
You will be in a legally binding contract to buy or sell the property as soon as the exchange occurs. If you do not complete the contract on the agreed-upon date, you risk losing your deposit and being sued. If you are the seller, however, you must sell to the buyer. Also, if you do not, the buyer has the right to keep their deposit and sue you.
Why Do We Exchange Contracts?
Neither party is legally obligated to acquire or sell the property until contracts are exchanged. Both the seller and the buyer have the option to cancel the transaction without penalty. Only when the solicitors’ exchange contracts formally do the transaction become legally binding. Penalties begin to accrue if completion is not completed on time. For each day that completion does not occur, interest will be accrued at the contract rate until completion occurs.
When Do I Exchange Contracts?
Typically, you exchange contracts between 7 and 28 days before completion, though in extraordinary situations, contracts might be exchanged on the day of completion. You must ensure that everything is in order ahead of time so that nothing goes wrong. For instance, if you are purchasing-
- You and I have reached an agreement on an offer.
- You’ve gotten a mortgage value and any other surveys you need.
- You have received a written formal mortgage offer.
- You have funds to make a deposit.
- Your solicitor has completed and reported on all relevant searches, all enquiries and responses, the mortgage, and the title to the property, and you have acknowledged that you are satisfied with everything received.
- You’ve arranged for building insurance. When you exchange contracts, you must put your building insurance on the line because you will be accountable for the property immediately.
- You and the other party have agreed on a completion date. The date will be spelt out in the contract.
- You have read, comprehended, and signed the contract.
What is the Timeline for Contracts Exchange and Completion?
Contracts are typically exchanged between one and four weeks before the completion date. It is feasible, however, to exchange contracts and complete the transaction on the same day, although this is not for the faint of heart.
Exchanging contracts and finalising on the same day exposes you to a slew of potential snags, such as having everything packed and ready to move without knowing for certain if the relocation will take place! Some lenders may not even consent to it, since many will want a minimum of five working days between the exchange of contracts and the completion date.
How to Accelerate Contracts Exchange and Completion
The key to expediting the transaction is for all parties to reply to requests for information or action as soon as feasible.
If buyers or sellers are unsure of the processor are sluggish to respond, or if solicitors and conveyancers do not execute things as quickly as they could, transactions can drag on for no apparent reason.
The buyer, their legal representative, and their mortgage broker should communicate well; similarly, the seller should communicate with their conveyancer and estate agent to ensure that everything is moving along smoothly.
The estate agent should keep in touch with all parties and check in on a frequent basis to see how the sale is progressing.
It also helps if you can agree on an exchange and completion date from the start, giving everyone a timeframe to work towards.
This can assist in identifying difficulties such as holidays that can cause delays in progress.
Buyer’s Tips
- When making an offer, have your conveyancer’s contact information available to provide the agent.
- Make sure you understand the process — your solicitor or conveyancer should have basic paperwork describing what happens when – so you know what to follow up on.
- Provide your conveyancer with anything they require as soon as they want it, and ensure that your initial cheque covers searches. be filed with them as soon as possible – and that they apply for the searches as soon as they get your payments.
- Select a reputable mortgage broker who has a track record of expediting mortgage offers.
- Insist on an independent survey being conducted as soon as feasible.
- As soon as the exchange is imminent, make sure your deposit money is immediately available and with your solicitor or conveyancer.
- Arrange for buildings insurance for the date of exchange so that you can provide the policy details to your law firm.
- Don’t go on vacation.
- Choose your conveyancer depending on service quality (not just price).
Sellers Tips
- Start gathering all invoices and warranties for work you’ve done, as well as any formal documentation connected to home modifications, such as building rules and gas and electrical certification, before putting your property on the market.
- Before you’ve even received an offer, instruct a solicitor or conveyancer so they can contact your mortgage lender for the title deeds and begin preparing the sale contract, which will be ready to send out as soon as you find a buyer.
- Understanding the conveyancing process will alleviate your stress and allow you to be more proactive.
- Complete the property information and fixtures and fittings forms as soon as you receive them.
- Respond to any additional inquiries by returning to this page.
- Sign and return the contract and transfer deed in a timely time.
- Don’t go on vacation.
- Choose your conveyancer depending on service quality (not just price).
The Step-by-step approach to Exchange of Contracts and Completion
Now that we’ve gone through the intricacies of contract exchange and completion, it’s time to get down to business. We’ll keep this brief because we’ve covered everything above in-depth, but this will provide you with a quick reference guide if you need it:
- Check that everything is in working condition (see ‘When Do I Exchange Contracts?’ above).
- Please sign the contract.
- Make a deposit payment to your lawyer.
- Instruct your lawyer to exchange contracts.
- Make preparations for completion (book removals, pack, inform relevant parties of the move)
- Buyer’s solicitor sends title certificate to lender
- Lender performs final checks
- The money has been released.
- The solicitor for the seller verifies receipt of monies.
- The keys have been handed over.
- It’s time to move!
Pros and Cons of an Attended Contracts Exchange
The essential thing to remember is that all of the risks are on the buyer, therefore it is not suitable for inexperienced buyers.
In general, only well-capitalized, professional real property investors attempt attended exchanges.
Pros
- The vendor has a buyer who has made a firm commitment.
- The buyer eliminates the possibility of getting outbid.
- Because everyone is in the same room, negotiating is easier.
- Given that both parties want to proceed swiftly, they are more likely to address any conflicts quickly and are less likely to be concerned about minor, cosmetic issues.
Cons
- The seller may be hoping for a rapid sale because they are aware of a major structural, title, or planning issue, and the buyer does not have time to completely investigate these issues.
- Because there isn’t time to conduct searches or conduct a full survey, the buyer must rely on the seller and their solicitor to provide accurate and reliable information regarding the property.
- It is significantly more expensive than standard conveyancing because you must pay for the undivided attention of an experienced conveyancing solicitor.
- The buyer’s legal representative suffers from the disadvantage of being away from their office and regular resources.
Can you back out after the contracts have been exchanged?
The first thing to mention is that either party withdrawing after an exchange is extremely unlikely.
Both the buyer and seller are contractually obliged to finish at the point of exchange. Therefore withdrawing out is a breach of contract that results in financial penalties.
What can cause a contract exchange to be delayed?
- Sometimes it is the seller or buyer that causes a delay in the conveyancing process, such as by failing to sign contracts on time or failing to provide information.
- Delays in searches might cause the entire conveyancing procedure to be delayed.
- Mortgage servicers
- Unanswered questions: If your solicitor has unsatisfactory answers to any of the questions, he or she will refuse to complete the case until they are resolved.
How much does it cost to exchange contracts?
When contracts are exchanged between a buyer and seller in England, the buyer must pay an exchange deposit.
This is normally 10% of the purchase price, however, it can be less if the buyer only has a 5% deposit.
If the buyer’s total deposit exceeds 10%, the remainder is normally paid on completion day.
Along with the legally binding exchange of contracts, the exchange deposit is the buyer’s commitment to the sale.
A buyer who backs out of a deal after the contracts have been exchanged may be sued by the seller, who may be awarded the exchange deposit plus further compensation.
What is a Completion Date?
When a buyer and seller exchange contracts, they will agree on a completion date.
The completion date is the date on which all final details of the property sale are finished and monies are transferred.
After that, the buyer receives the keys to their new home.
If the property is part of a long chain, the completion date must be agreed upon by everyone in the chain. This means there is frequently less flexibility on dates in long chains.
Completion dates are frequently on Fridays, giving buyers the following weekend to settle into their new property.
What occurs on the final day of the completion?
On the day of completion:
- The buyer and seller will wait for their solicitor to confirm that the mortgage and deposit amounts have been transferred.
- Each transfer of funds occurs one sale after another in long chains, implying that big chains can take more than a day to complete.
- When the seller has moved out, the buyer will be given the keys by the estate agent selling the property and will be able to move their belongings in.
Can contracts be exchanged without a completion date?
Contracts cannot be exchanged unless the buyer and seller have agreed on a completion date.
Because the completion date is written into the final contracts, the sale and date become legally binding for both the seller and the buyer.
A predetermined completion date also means that both solicitors must achieve this deadline or face being sued by their clients.
Is the exchange of contracts legally binding?
You will be in a legally binding contract to buy the property once you have exchanged contracts. If you do not comply, you will forfeit your deposit and may be sued. However, the seller must sell or you may keep their deposit and sue them.
Should you exchange and complete the first day?
It is lawful to exchange and complete on the same day; nevertheless, there are several drawbacks to trading and completing on the same day. These are some examples:
It will be a hard day because you will have a lot to organise in one day.
There are numerous potential pitfalls, such as signed documentation not being received on time, searches being delayed, and last-minute mortgage concerns. All of these delays could have costly effects, such as needing to rearrange the removal vehicle.
Some mortgage lenders specify a minimum time between exchange and completion, thus completing and exchanging on the same day may limit your lender alternatives.
Exchange of Contracts FAQs
Do you own a property after exchange?
Once you’ve exchanged contracts, you’re legally committed to acquiring the property and can thus claim to be the new owner. Even though, as previously stated, you are legally accountable for your new home after the exchange, the seller retains ownership until completion.
Why do houses Exchange on a Friday?
For two reasons, Friday is the most preferred day to relocate. For starters, many appreciate it since it lets them spend the weekend unpacking and settling into their new house without taking too much time off work.
Can seller withdraw after exchange of contracts?
The house-buying procedure is not legally binding until you exchange contracts. At any time, either the buyer or the seller can opt out of the transaction.
