Exchange of contracts is the point in a conveyancing transaction where the transaction becomes legally binding, the completion date is “locked in”, and one of the most important stages in any transaction is reached.
As conveyancing transactions are a legal process, there are several steps that need to be taken before anyone can exchange.
Buyers and sellers usually reach this point when:
- All enquiries have been raised by the buyers’ solicitors.
- The seller has resolved these enquiries.
- All the necessary searches are back.
- Mortgage finance or other funding along the chain of transactions is in place and has been checked.
This is generally the point where dates for exchange and completion between everyone involved start to be discussed.
What Is Needed to Exchange Contracts?
In order to exchange contracts, both the solicitors for the buyers and the sellers will need to hold a signed contract.
The buyer’s solicitor will also need the deposit, which is usually 10% of the purchase price.
It is possible to agree a smaller deposit in certain circumstances. This usually happens where there is a substantial difference in the purchase prices of properties in a chain, or if a buyer is obtaining a 95% mortgage offer.
How Does the Deposit Work in a Property Chain?
When someone is both selling and purchasing, they can use the deposit being provided by their own purchaser towards their own purchase.
As a result, the deposit can sometimes “travel” up the chain, although no money is practically changing hands at this point.
It is therefore not always necessary for a party who is selling and buying to put forward their own money for exchange, provided it is agreed in advance.
What Happens on the Day of Exchange?
On the day of exchange, solicitors will need authority from their clients to:
- Exchange contracts
- Set the agreed completion date
As exchange locks in the completion date and makes it binding on everyone, a completion date must have been proposed and agreed in principle before exchange.
It is therefore important that everyone considers the practical arrangements around their move before exchanging, especially the availability of any removers.
If you exchange and then cannot make practical arrangements to move on the day of completion, you will still need to vacate the property. If you do not, you risk being in breach of contract or potentially being liable for expenses incurred by others as a result of any delay.
Insurance and Finance Before Exchange
Buyers must take out house insurance on the day of exchange. It is important that insurance is reviewed beforehand to confirm that all standard risks can be covered and that a draft policy has been obtained.
Buyers must also ensure that all finance is confirmed and ready.
Once exchange takes place and the completion date is set, a failure to complete on that day by the buyer could result in their deposit being lost. They may also be responsible for the costs of others along the chain.
Bear in mind that if an exchange deposit was less than 10%, the buyer is contractually obliged to “make up” the deposit to the full 10%.
Forfeiture is another process, which is outside the scope of this article.
Before Exchange, Check That:
- All contracts are signed and with the solicitors.
- Removal availability for completion has been confirmed for everyone.
- Purchasers have their finance in place.
- Purchasers have paid their deposit.
- Purchasers have their insurance ready.
When Can Exchange and Completion Take Place?
Exchange and completion can take place on any working day of the week.
There is no minimum gap between the two, subject to practical arrangements. However, it is more usual to have a longer gap between exchange and completion.
If someone in the chain has a mortgage, the lender will usually need notice to send the funds to the solicitors. This is typically 5–7 working days.
Need Advice?
If you are buying or selling a property and have questions about exchange of contracts, our residential property team based across the South West are here to help.
To speak to one of our property experts, call 01626 202404 and we will be happy to assist you
