Buying a house is one of the biggest milestones in most people’s lives. But while it is an exciting prospect, it can also be stressful and confusing.
Buying or selling a property is a complicated process involving lots of steps. There are usually many people involved, such as solicitors, mortgage advisors and surveyors.
Plus, there’s a great deal of technical jargon to wrap your head around. If you’ve never bought or sold a property before, you may have come across terms and phrases like “completion” and “exchange of contracts”, but you have no idea what they mean.
In this guide, we focus on one of the most important steps in the property buying process: Exchanging contracts. We explain what it means to exchange contracts and how long it takes, as well as take you through what both the buyer and the seller need to do before they can exchange.
What does “exchange of contracts” mean?
When signed contracts are swapped by the legal parties that represent the buyer and seller of a property, it is known as an “exchange of contracts”.
This is the point at which the transaction becomes legally binding, and both the buyer and the seller are contractually obliged to finalise the transaction on an agreed date, which is known as “completion”.
Read on to find out more.
What happens at exchange of contracts?
There are several things that happen when a buyer and a seller exchange contracts:
- A completion date is agreed on (we go into completion in more detail later)
- The terms of the sale are confirmed
- The buyer’s solicitor confirms that they are in possession of a mortgage offer, buildings insurance policy, all paperwork relating to the lease and management of the building (if they are required), cleared deposit funds and a signed contract
- The seller’s solicitor confirms that they are in possession of the signed transfer of title deed (form TR1) and a signed contract
- The buyer pays an exchange deposit (see below for an explanation of this)
- Once both solicitors confirm they hold all the necessary legal documents, they exchange contracts, at which point, the transaction becomes legally binding
What can delay the exchange of contracts?
Buying a property can be a slow process, and there are multiple factors that can delay the exchange of contracts. Some of these include:
- Complicated property transactions
- Mortgage delays
- Unanswered questions on either side
- Solicitors have to deal with multiple clients at the same time
- Survey delays
What is an exchange deposit?
An exchange deposit is a lump sum which the buyer needs to pay to the seller to assure them that they are committed to buying the property.
It is usually around 10 per cent of the purchase price — but can be negotiated down — and is typically taken out of your mortgage deposit. If your mortgage deposit is larger than 10 per cent of the purchase price, you’ll normally pay 10 per cent when you exchange contracts and the rest when you complete.
What is an “attended exchange of contracts”?
In the past, solicitors would meet face-to-face to exchange contracts, but nowadays, this is typically done over the phone.
If, however, one or both parties want the transaction to go through quickly, they can meet in person — usually at the office of the seller’s solicitor — to try to get the sale pushed through that same day. This is called an “attended exchange of contracts”.
What do buyers need to do before they can exchange?
For the sale of the property to go through as quickly and smoothly as possible, it’s important to make sure you have everything in place so precious time isn’t wasted chasing things up. As a buyer, you must do the following things before you will be able to exchange contracts:
- Agree on a completion date
- Arrange for a buildings insurance policy to start from the date of the exchange
- Ask your solicitor any outstanding questions and raise any concerns you might have about the search results or anything else
- Commission an independent house survey and send a copy of the check to your solicitor
- Get a written offer if you’re taking out a mortgage and send a copy of it to your solicitor
- If you have a Help to Buy ISA, inform your provider of the sale so they can request your bonus from the government
- Read the lease if you’re buying a leasehold or a share of freehold property
- Sign the contract of sale
- Sign the transfer of title deed, if necessary
- Return all signed documentation to your solicitor promptly
What do sellers need to do before they can exchange?
Like buyers, sellers must ensure they have signed all the right legal and financial documentation. However, as a buyer, there is less for you to do:
- Agree on a completion date
- Cancel your existing buildings insurance policy and arrange for a new one to start on your new property from the date of exchange
- Compile all the paperwork you have for any work that’s been done on the property, including things like planning permission and the lease
- Ensure you have responded to all questions and provided all the documentation you’ve been asked for
- Fill in and sign all the necessary forms, including the contract of sale, transfer of title deed, property information form (TA6) and the fittings and contents form (TA10)
- If applicable, arrange finance for your new home and get a mortgage statement from your provider
- Wait for the results of the survey and be prepared to negotiate if anything unsatisfactory is found
How long after contract exchange is completion?
As mentioned in the sections above, both parties must agree on a completion date before exchanging contracts.
The completion date will usually be around two weeks after exchanging contracts, but you can ask for more or less time if you wish. Giving yourself more time to pack, hire a removals company, transfer your utilities, redirect your mail and book time off work can be helpful, but do bear in mind that most mortgage offers expire within three to six months, so it’s not a good idea to leave it too long.
In most cases, you can be confident that you will definitely complete on the date that’s been set. This is because legal firms can be sued if they don’t meet the deadline, so it’s within their best interests to ensure completion happens on time.
It is possible to exchange and complete on the same day, but doing so is much more stressful, as there’s a lot to organise with no guarantee that the transaction will go ahead.
If you are keen to complete as soon as possible, though, there are some ways you can speed up the process:
- Agree on an exchange and completion date from the very start of the house-buying process so that everyone can work to the same timescale
- Inform your solicitor of any holidays you have planned, so they can speak to you about any outstanding issues before you go away
- Respond to all requests from the other party immediately
- Stay in regular contact with your solicitor, surveyor, mortgage lender and estate agent to keep things moving along and deal with any problems as soon as they arise
What happens between exchange and completion?
Once both parties have exchanged contracts and agreed on a completion date, everyone involved will need to make certain arrangements:
The buyer
- Changes their address documentation and arranges for mail to be redirected
- Contacts their utility providers to transfer or end their services
- Packs up their belongings and hires a removal company
The buyer’s solicitor
- Confirms that the buyer’s mortgage company is on track to transfer funds on completion
- Draws up a final completion statement
The seller
- Changes their address documentation and arranges for mail to be redirected
- Contacts their utility companies to transfer or end their services
- Gives the estate agent a set of keys, which can be given to the buyer on completion
- Packs up their belongings and hires a removal company
The seller’s solicitor
- Confirms the redemption figure with the mortgage provider
- Draws up a final completion statement
What happens at completion?
On completion day, the transaction will be legally finalised, and the buyer will be handed the keys to the property.
This is how completion day typically looks:
- The buyer’s deposit and mortgage are transferred to the seller’s solicitor
- The seller’s solicitor confirms this with their client, the buyer’s solicitor and the estate agent
- The title documents are dated and transferred from the seller to the buyer
- The seller leaves the property by 1pm unless agreed otherwise
- The buyer collects the keys from the estate agent and is free to move into the property once the seller has left
- The buyer is now liable to pay any Stamp Duty Land Tax due
- The buyer’s solicitor registers the new ownership with the Land Registry
What happens if you pull out after contracts are exchanged?
It’s rare for a buyer or seller to pull out of the property transaction after they’ve exchanged, as this is a breach of contract, and there are financial implications for doing so.
If the buyer pulls out, the seller can sue them to keep the exchange deposit and to cover any additional costs they may have incurred, as well as for compensation. They may also have to pay interest on the unpaid purchase price.
If the seller pulls out, the buyer can sue them for compensation and cover the costs they have incurred (such as their legal fees and survey fee), and they may have to pay interest on the deposit. The financial repercussions for the seller may not be as severe as they are for the buyer, however, pulling out of a property transaction after exchanging contracts can make estate agents wary about dealing with you in the future.
Summary
When the two legal parties that represent the buyer and seller of a property swap signed contracts, it is known as an “exchange of contracts”. The transaction then becomes legally binding, and both the buyer and the seller are contractually bound to finalise the transaction on an agreed “completion” date. When a buyer and a seller exchange contracts, the terms of the sale are confirmed, the buyer pays an exchange deposit and both parties’ solicitors confirm they have all the necessary documentation.
For the sale of the property to go through as quickly and smoothly as possible, buyers and sellers must ensure that they have signed all the right legal and financial documentation, all funds are in the right hands, and they respond to the other party’s queries in a timely manner.
The completion date will usually be around two weeks after exchanging contracts, but you can ask for more or less time, depending on how long it will take to do things like organising removal companies, changing your address information and contacting your utility providers. On completion day, the transaction will be legally finalised, and the buyer will be handed the keys to the property. If a buyer or seller pulls out of the property transaction after they’ve exchanged, it is considered a breach of contract, and there will be financial implications.