Exchanging contracts is a major step in the home-buying process and both buyers and sellers often breathe a huge sigh of relief once this particular milestone has been completed.
But what exactly does exchanging contracts mean and what happens when you do?
We’ve got all the answers right here…
What does exchanging contracts mean?
Exchanging contracts is the moment when a buyer and seller swap documentation to confirm a property sale is legally binding.
Once a buyer and seller have exchanged contracts, the sale is confirmed for the agreed asking price, with neither party able to pull out without facing extremely serious financial consequences.
The exchange of contracts is a crucial stage, as prior to this happening, neither the buyer or seller are legally-bound to the sale of the property.
When does exchanging contracts happen?
Exchange of contracts only happens once every detail of the property sale has been finalised.
Exchange shouldn’t take place until:
- A purchase price has been agreed between the buyer and the seller
- Mortgage valuations and surveys have been completed
- The buyer has a formal mortgage offer in place
- The buyer has their deposit funds in place
- The buyer’s solicitor has completed all relevant searches
- The buyer and seller have agreed which fixtures and fittings will be included in the sale
- The buyer has organised a buildings insurance policy to begin on the day of exchange
- The buyer and seller have agreed a completion date for the sale
- Both buyer and seller have read, understood, and signed the contracts
What happens when you exchange contracts?
Although exchange of contracts is a big day for both the buyer and seller, it’s actually a very straightforward process that requires no involvement from either party.
- Solicitors acting for the buyer and seller will agree a time to exchange contracts
- Both solicitors will read their client’s version of the contract out loud in a recorded phone call with the other solicitor, to ensure both versions are identical
- Once agreed, each solicitor will post their version of the contract to the other solicitor
How much do you pay to exchange contracts?
When contracts are exchanged between a buyer and seller in England, the buyer must pay an exchange deposit.
This is usually 10% of the property’s purchase price, but can be less if the buyer only has a 5% deposit.
If the buyer’s overall deposit is bigger than 10%, the remainder is usually paid on completion day.
The exchange deposit is the buyer’s commitment to the sale, alongside the legally binding exchange of contracts.
A buyer who pulls out of a sale after exchange of contracts could be sued by the seller, who may end up being awarded the exchange deposit, plus further compensation.
What is a completion date?
A buyer and seller will agree a completion date when exchanging contracts.
The completion date is the day when all final aspects of the property sale are completed, and funds transferred.
The buyer is then given the keys to their new home.
If the property’s sale is part of a long chain, the completion day will have to be agreed by each person in the chain – meaning there’s often less flexibility on dates in long chains.
Completion dates are often on Fridays, so buyers have the following weekend to settle in to their new property.
What happens on completion day?
On completion day:
- The buyer and seller will await confirmation from their solicitor that mortgage and deposit amounts have been transferred
- For long chains, each transfer of funds happens one sale after another, meaning long chains can take more than a day to complete
- As soon as the seller has moved out, the buyer will receive the keys from the estate agent selling the property and be able to move their things in.
How long do you have to complete after exchanging contracts?
There are no hard and fast rules on the time between exchange of contracts and completion and the gap is whatever timeframe the buyer and seller agree to.
One or two weeks between exchange and completion is common, as this gives both the buyer and seller time to organise removals and get their things together ready to move.
However, it’s possible to exchange and complete in a shorter space of time, or longer, if both sides agree.
Can you exchange contracts without a completion date?
Exchange of contracts can’t take place unless the buyer and seller have agreed to a completion date.
That’s because the completion date is drawn into the final contracts, making the sale, and date, legally binding for both the seller and the buyer.
A fixed completion date also means both solicitors have to meet this date, or they can be sued by their clients.
What can hold up exchange of contracts?
The time between a buyer making an offer and both parties exchanging contracts is usually the longest phase of a property sale.
Common issues that can hold up exchange of contracts include:
- A seller who is slow to answer enquires from the buyer’s solicitor
- Buyers and sellers who are slow to provide required documentation or information
- Solicitors who are working on several property sales at the same time
- Sales that are part of long chains
- Local authorities that are slow to provide solicitors with searches
- A slow mortgage lender or a buyer whose mortgage is tight on affordability