What Does ‘Exchange Of Contracts’ Mean?
Exchange of contracts and completion are the final stages of buying and selling property. This stage brings security that a sale will no longer fall through. So what exactly is exchange of contracts and completion? We take a look and explain everything you need to know in detail.
What Does ‘Exchange Of Contracts’ Mean?
‘Exchange of contracts’, when buying and selling property, occurs when the two conveyancing firms working for a buyer and a seller swap the signed contracts of sale and the buyer pays a deposit. This is the point at which the agreement to buy or sell a property becomes legally binding and neither party can back out of the deal.
After an offer has been accepted on a property, many things must be done before contracts are ready to be exchanged. Here is a run down of both the buyer and seller’s responsibilities:
The Buyer Must…
- Organise an independent property survey to check for any structural issues with the property, and if necessary, negotiate repairs or a reduced price with the seller depending on the findings.
- If you’re taking out a mortgage, get a written mortgage offer.
- If you’re buying a leasehold property or a share of freehold property, examine the lease and raise any questions or concerns with the solicitor.
- Arrange building insurance.
- This must be in place from the date of exchange.
- If the property is in a flood-risk area or has subsidence issues, it is worth asking the seller which insurance company they use as they will already have details on the building and associated risks.
- Inform your solicitor of the policy number.
- If you have a Help to Buy Isa, tell the provider that you are buying a property so they can request your government bonus.
- When you receive the results of the searches, ask about anything you’re concerned or unclear about.
- Sign the contract and any other documents and return them to your solicitor promptly.
The Buyer’s Conveyancing Solicitor must…
- Ensure that any repairs that their client has committed to are noted in the contract.
- Complete local searches to check for any planning or environmental issues.
- If it’s a leasehold property, examine the lease carefully.
- Raise queries relating to the results of the survey, searches or the terms of the lease with the seller’s solicitor.
- Check the contract and send it to the buyer for signing.
- Organise a date of completion with the seller’s solicitor.
- Arrange to transfer the deposit on the buyer’s behalf.
The seller Must…
- Examine the results of the house survey and if necessary, negotiate based on the findings.
- Find the paperwork for any work you’ve had done on the house, such as proof of planning permission, Fensa Certificates for the windows etc.
- Fill in the necessary forms,such as the property information form (TA6) and fixtures and fittings forms (TA10).
- Inform your buildings insurance provider that you are moving and cancel the policy – arrange a new one for the property you’re moving into, starting on the date of exchange.
- Obtain a mortgage statement and organise finance for your new home, if need be.
The Seller’s Solicitor Or Conveyancer Must…
- Complete and check the relevant forms with the seller and return them to the buyer’s solicitor.
- Answer queries raised by the buyer’s solicitor.
- Obtain the title deeds and the balance of the seller’s mortgage.
- Write a draft contract of sale, noting any work that the seller has committed to make to the property and send it to the buyer’s solicitor.
- Agree on a date of completion with the buyer’s solicitor.
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When Does Exchange Happen?
As soon as the buyer and seller have all the relevant paperwork in place, contracts can be exchanged. The buyer and seller will both sign identical documents and the solicitors will exchange the contracts at a pre-agreed time. It is then that the agreement becomes legally binding and neither party can back out without major penalties.
Quite often, exchange takes place over the phone, while both solicitors read out the contracts and immediately send the documents to one another. If there is a property chain, the solicitors must wait until every party in the chain is happy to proceed before exchanging contracts. If ther is a problem anywhere along the line, this could delay all of the exchanges.
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What Happens To My Deposit?
When contracts are exchanged, a deposit must be paid to the seller. This is usually 10% of the property price (which sometimes differs from the mortgage deposit you’re putting into the property). If you have a bigger deposit than 10%, you’d normally pay 10% at exchange and the remainder when you complete. The main purpose of this is to show you definitely intend to buy the property. If you pull out of the deal after exchange, the seller can claim to keep the exchange deposit.
How Long Does The Process Take?
The time between having an offer accepted and exchanging contracts can take anything from a couple of weeks to several months. When contracts are exchanged however, the solicitors will agree on a completion date. Since conveyancing firms can be sued if they fail to meet the agreed date, you can be fairly certain you will definitely complete on the date agreed.
Completion dates are often a week to two weeks after exchange but this is just a guideline. The decision about exactly when to complete will largely depend on how many properties there are in the chain and each party’s circumstances. Completing on a Friday is popular because it allows for settling into the property over the weekend. However, if there are any financial holdups and your mortgage doesn’t end up being paid to the seller on the chosen Friday, this could mean being stuck for a whole weekend.
Buyers – You will simply wait for a phone call from your conveyancer confirming that your mortgage and deposit have been paid to the seller and that completion has taken place via electronic transfer between the both conveyancers bank accounts. Assuming things run smoothly, you can collect the keys from the estate agent and start moving as soon as the seller has vacated the property.
Can I Exchange And Complete On The Same Day?
It’s possible to exchange and complete on the same day but rare. It would allow you to move without delay and omit the need for the exchange deposit. However, it can be hard to plan everything in advance. There isn’t much time to fix things if anything goes wrong either.
This option is less risky if both you and the seller are chain-free, with no other parties involved. It’s also easier for cash buyers.
Do I Need A Solicitor To Exchange And Complete?
Solicitors are responsible for a number of legal processes that need a qualified expert to carry out. They are responsible for transferring the title deeds, conducting property searches and ensuring you legally own your new home, as well as creating legally binding contracts.
Most mortgage lenders will insist you use a conveyancer or solicitor as a condition of their offer.
As a cash buyer, it’s possible but very risky. If you do try to do it yourself, any errors could mean you don’t legally own the property. You could also end up owing compensation to other parties if something goes wrong.
Whether you are buying, selling or remortgaging, you are sure to find the best licenced conveyancer by filling in our simple form. Our extensive online database of conveyancers offer no obligation fixed fee conveyancing quotes.
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