Exchange of contracts
Exchanging contracts is an essential step in the process of buying and selling property but what is it exactly and who does what to make it happen?
Your offer on a property has been accepted and you’re excited about moving in, but it’s not a certainty until you’ve exchanged contracts, when the transaction becomes legally binding on both parties.
Exchanging contracts is part of the process of buying and selling property in England and Wales as well as Northern Ireland, although some aspects of the law are different there. Scotland has a different system.
What is exchange of contracts?
Exchange of contracts is when the buyer’s and seller’s solicitors check with each other that the contracts the buyer and seller have signed to agree the sale are identical and then send them to each other. Only then is the sale legally binding and neither party can pull out without facing significant costs.
It’s the job of the seller’s solicitor to draft the contract, who then sends it to the buyer’s solicitor. Once the buyer’s solicitor has checked it over they send it to the buyer to sign. Then when both the buyer and seller have signed it, the solicitors go through each contract – usually by reading them out over the phone – to make sure they’re identical. The conversation is recorded. If both solicitors are happy that the contracts are identical, they will immediately post them to each other.
If you are in a property chain – in its shortest form, where a buyer needs to sell their existing property to buy another one – all parties in the chain will need to be ready to exchange contracts on the same day before it can happen. The longer the chain, the more potential hold-ups that could delay when exchange can take place.
The difference between exchange and completion
Although exchange is the point at which the parties are legally bound to complete the transaction, this isn’t usually the date the buyer moves into the property. When exchange takes place a completion date is set, which is often two weeks after exchange and will be the same for all the parties in a chain. The buyers and sellers then have two weeks to confirm their moving date with their chosen removal firm, pack and make other arrangements such as setting up mail redirection.
Exchange and completion can take place on the same day but this can be tricky to manage as you won’t know for sure whether you’re actually moving on that day until exchange happens successfully.
On completion day you’ll get a call from your solicitor to say that the money has been received, which can take time, especially if there’s a long chain. If you’re the buyer you’ll then be able to collect the keys from the estate agent and move in.
Preparing to exchange contracts
A number of things need to happen before exchange of contracts can take place.
If you’re the buyer of the property you’ll need to get a survey done to find out about the condition of the building and whether there are any serious issues. If there are, you may need to negotiate with the seller to get them to reduce the asking price or carry out repairs by exchange or completion, which your solicitor should make sure is included in the contract.
You will need to get a mortgage offer if you’re buying with a mortgage and get your money together for the exchange deposit. You’ll also need to check the results of the searches your solicitor carries out, such as to check whether the property is in a conservation area or whether there are any new roads planned near the property, and raise any questions you have. If you are buying a leasehold, you’ll need to check over the lease as well.
Plus, you’ll need to arrange buildings insurance, which must be in place from the day contracts are exchanged, and sign the contract your solicitor sends you.
If you’re the seller you’ll need to fill in the forms from your solicitor, including the property information form and the fixtures and fittings form, and gather together any paperwork you have in relation to major works you’ve had carried out on the property and any guarantees.
Your solicitor will send your completed forms to the buyer’s solicitor, look into and answer any queries they might have and draft the contract. They will also need to obtain the title deeds or copies of the title register and get details of how much you have left to pay off on your mortgage.
It’s important to respond to any queries from the solicitor and send any documents required quickly to avoid holding up the process.
Paying the exchange deposit
When you exchange contracts the buyer has to pay a deposit of 10% of the purchase price, or sometimes 5% if you’re only getting a mortgage for 95% of the property’s value. If you’re putting down a mortgage deposit of more than 10% you’ll usually pay only 10% at exchange and the rest on completion. The deposit means that if the buyer pulls out the seller can keep the 10% so it’s very unlikely that the sale will fall through at this point.
If the seller pulls out after exchange they will have to return the deposit with interest and will likely have to pay legal costs.
How long does it take to get to exchange of contracts?
This depends on how many issues arise that need to be dealt with along the way, how quick the parties involved are to carry out what they need to and how many people are in the chain but it could take between a few weeks and a few months.
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