Exchanging contracts is always a big moment for both buyers and sellers.
The property sale process can be a nervy affair, after all.
But once those contracts are exchanged, the sale is legally binding and everyone can relax, right?
Well, most of the time...
Let's look at the process in more detail...
Exchanging contracts: Everything you need to knowBefore we go into detail on how the exchange of contracts works, it's worth reflecting on everything that is done prior to this big moment.
Before you exchange contracts:
* The buyer's solicitor should have completed all searches
* Buyer and seller (if applicable) should have mortgage offers in writing
* The buyer should have their mortgage deposit funding in place
* A completion date should have been agreed
* Each side should have read and checked their contracts
* Buyer and seller should have agreed on fixtures and fittings etc
* The seller should have arranged for a valid Energy Performance Certificate to be produced (or found an existing one)
* The buyer should have organised buildings insurance valid from the date of the contract exchange
How do solicitors exchange contracts?Solicitors from both the buyer's and seller's side will generally read out the contents of the contract over the phone in a recorded conversion.
They will ensure the contents of the contracts is the same and then post them to each other.
Exchange of contracts depositIf you exchange contracts prior to completion, as most property sales do, then the buyer will need to pay an exchange of contracts deposit.
This is usually 10% of the purchase price, payable to the seller, with the remaining balance of further deposit and mortgage payable on completion.
Sometimes, it is possible to exchange contracts and complete the purchase on the same day, in which case all monies will be transferred in one go.
Pulling out after exchange of contractsExchange of contracts is a legally-binding process which means if a buyer pulls out afterwards, they could be liable for huge costs.
These costs could include:
* Losing your deposit
* Being sued by the seller
* Paying the seller's legal costs
* Paying interest on the unpaid purchase price
* Paying the difference in purchase price if the seller goes on to sell for a lower price
As you can see, withdrawing from a property purchase after exchange is not advised.
Should a seller pull out, they will likely have to return the buyer's deposit, plus interest, and could be liable for legal costs to cancel registration of the contract.
How long between exchange and completion?Usually a property sale completes between seven and 28 days after exchange of contracts.
While exchange and completion can be done on the same day, it is not advised as it leaves the buyer exposed to last-minute demands from the seller.
The process is also reliant on all money transferring on time.
What happens on completion day?Once the buyer and seller are ready to complete and all finances are in place, the buyer's solicitor will receive funding from the mortgage company and everyone with an interest in the sale is paid.
That includes the seller, the Treasury for Stamp Duty and the solicitor themselves.
The seller's solicitor will ensure all money is received in full and then pay themselves and the seller's estate agent the agreed commission.