Conveyancing: What does ‘exchange of contracts’ actually mean?
If you are buying or selling a property, your conveyancer will talk about “exchange of contracts” but what does that mean and what exactly does it involve?
Questions to be answered in this article
What does exchanging of contracts mean?
Simply put, the exchange of contracts is the name given when the two solicitors working on behalf of the buyer and the seller swap documentation to signify an agreement has been reached between both parties with regard to the property sale.
What’s the difference between exchange and completion?
The main difference between exchange and completion is that ‘exchange’ is an exchange of contracts, which makes the matter legally binding between the parties, whereas ‘completion’ is the date the parties physically move and transfer legal ownership of the property.
Can you exchange contracts without a completion date?
Exchange of contracts can’t take place without a completion date agreed. At the point of exchange, the deal becomes legally binding and everyone must complete on the agreed date.
What happens on exchange day?
Your conveyancers will contact the conveyancing solicitor acting for the other side and run through the contract on the telephone; they will then date the contract, confirm the time of exchange and set the completion date in stone.
If you’re buying…
If buying, you will need to provide your conveyancer with the deposit monies. The deposit will be sent to the seller’s conveyancer on exchange or held to their order pending completion. The deposit is paid so that in the event that the buyer fails to complete, the seller can forfeit the deposit (i.e. keep it), which can be used to cover abortive sale costs and the costs of re-selling the property.
If you are buying and selling property
The deposit will come up the chain starting with your buyer or your buyer’s buyer (if they are also selling); therefore you do not need to provide your conveyance solicitor with any monies for exchange. The amount of deposit available will depend on what your buyer (or buyer’s buyer) is providing, if it is less than 10%, your conveyancer must ensure that you and your seller (on your purchase) are happy to accept a smaller deposit coming up the chain.
In this instance, if your buyer (or buyer’s buyer) defaults and you do not have the funds in the bank to complete your purchase, you could be in breach of contract. It is due to legal complications such as these that we highly recommend instructing a trusted and reputable firm of solicitors for conveyancing matters.
What’s the exchange deposit for?
Its main purpose is to show the seller that you’re definitely going to buy the property. If you pull out of the deal after exchange, the seller can sue you to keep the exchange deposit.
How long will the exchange take?
It is worth noting that exchange can sometimes take hours, if not days, particularly when you are in a chain. Whilst you may be ready to exchange contracts, other parties in the chain may have outstanding issues to resolve before they can proceed, therefore you will need to wait until they are ready to exchange.
How can I prepare for exchange day?
You must ensure you are happy with all of the replies to enquiries, the survey and search results and that you have no further concerns regarding the property. You should even visit the property prior to exchange, to ensure that no subsequent issues have arisen since you last viewed the property weeks, if not months, ago.
How can I speed up exchange process?
- Choose an experienced mortgage broker and conveyancing solicitor.
- Have your funds in order and make sure your deposit is transferred to your solicitor in good time.
- Have your conveyancer’s details ready to give the agent when making an offer.
- Provide your conveyancer with everything they need as soon as they ask for it
What can delay the exchange of contract?
- Sometimes it is a seller or buyer who delays the conveyancing process this can be by not signing contracts promptly or not offering information.
- Delays on searches: they can delay the entire conveyancing process.
- Mortgage lenders
- Unanswered enquiries: If your solicitor has unsatisfactory answers to any of the queries, he\she will not want to complete until they are clarified.
Is exchange of contracts legally binding?
Once you have exchanged contracts you will be in a legally binding contract to buy the property. If you do not you will lose your deposit and you can be sued. Equally though, the seller has to sell or you can keep their deposit and sue them.
Should you exchange and complete on the first day?
It is legally possible to exchange and complete on the same day, however there are some pitfalls of exchanging and completing on the same day. These include:
- It will be a very stressful day – you’ll have a lot to organise in one day.
- There are all kinds of things that could go wrong, like signed paperwork not being received in time, searches being delayed, and last minute mortgage issues. All these delays could result in costly consequences for example, having to rearrange the removal van.
- Some mortgage lenders state a minimum time between exchange and completion, so wanting to complete and exchange on the same day may limit your options for lenders.
What happens next?
Once an exchange has happened, the main thing to do is celebrate! You can start preparing including setting up postal redirects for a certain date.
Next is completion day, you may want to visit our article: What does completion mean?
Goughs are here for you every step of the way…
Using Goughs as your property conveyancing firm ensures you are in the best possible hands to manage your exchange. Your dedicated lawyer will provide open and honest advice throughout the house conveyancing process to ensure a smooth transaction for all parties involved. Get a free conveyancing quote today.