Buying or selling a house can be an exciting process but we understand there is a great deal of terminology involved which can be difficult to get to grips with.
Two such terms are ‘exchange of contracts’ and ‘completion’. Here is an explanation of precisely what these terms mean and answers to some commonly asked questions:
- When buying a house, do you exchange or complete first?
- What does ‘exchange of contracts’ mean?
- Can a buyer pull out between exchange and completion?
- Do I need to be present during the exchange of contracts?
- How does my solicitor prepare for the exchange of contracts?
- How does my solicitor exchange contracts?
- I’m in a chain; can we exchange contracts whenever we are ready?
- What happens between exchange and completion?
- What is a normal gap between exchange and completion?
- What does my solicitor do on completion day?
- Can I do building work between exchange and completion?
- Can things go wrong between exchange and completion?
When buying a house, do you exchange or complete first?
Completion, as the name suggests, is the final stage of the conveyancing process. It is the day on which the purchase price is paid to the seller, and the buyer can collect the keys to their new property.
The exchange of contracts happens before completion.
What does ‘exchange of contracts’ mean?
The exchange of contracts is the point at which the sale or purchase becomes legally binding between the parties. It commits the buyer to purchase the property and the seller to sell it for the agreed price on the agreed completion date.
Can a buyer pull out between exchange and completion?
After an exchange of contracts, if a buyer pulls out of the purchase and fails to complete on the agreed completion day, the buyer will be in breach of contract. The contract will contain provisions for the buyer to forfeit, i.e., lose, their deposit to the seller, and other provisions for compensation for losses.
Before the exchange of contracts, either party may withdraw from the transaction without any legal consequences because no contract has been made between the buyer and the seller. There are a number of reasons why a party might withdraw. The conveyancing process in England and Wales allows buyers the opportunity to make a full investigation of the property before making a legal commitment to buy it.
Do I need to be present during the exchange of contracts?
The exchange of contracts is an entirely remote process. Your solicitor will have asked you to sign and return a copy of the contract in advance. This signed copy is held on file until the exchange of contracts takes place. You will need to be contactable either by phone or email on the day of exchange as your solicitor will request your express authority to proceed with exchange of contracts on your behalf, this makes sure you have not changed your mind and is an opportunity for any last-minute queries to be dealt with prior to committing you to the sale/purchase.
How does my solicitor prepare for the exchange of contracts?
If you are selling a property, your solicitor will prepare to exchange contracts by making arrangements for you to sign and return a copy of the contract.
If you are buying a property, your solicitor will need to have completed the following steps before proceeding with exchange of contracts:
- Made arrangements for the buyer to sign and return the contract
- Received deposit funds from the buyer (usually 10% of the purchase price)
- Complete land registry checks to ensure nothing has changed on the title since it was provided by the seller
Whether you are selling or buying or both, your solicitor will contact you to request your express authority to proceed with exchange of contracts that day, we always want to make sure you have not changed your mind and are able to book your removals company before committing you to a contract.
How does my solicitor exchange contracts?
Exchange of contracts involves a telephone call with the solicitor representing the other party. The solicitors will read through the details of the contract to ensure the terms in each contract are exactly the same.
When the solicitors are satisfied that both contracts are identical, they will agree to date the contract which brings the contract into existence.
I’m in a chain; can we exchange contracts whenever we are ready?
If you are selling your current home and moving into a new one, you are part of a chain of transactions and exchange of contracts must align with all other parties in the chain, who must also agree the all-important completion date.
This can take some coordination and estate agents are well placed to bring the chain to an agreement that suits everyone involved.
Once the dates are agreed and all parties ready to exchange, the solicitors will ‘release’ the contract to the solicitor above them. The next solicitor in the chain does the same and this process is repeated until the top of the chain is reached and the top contract is exchanged. Confirmation is then communicated back down through the chain by each solicitor until the solicitor at the bottom is reached.
What happens between exchange and completion?
Between exchange and completion, the final administrative tasks are completed, such as requesting estate agent invoices and mortgage funds in readiness for completion.
What is a normal gap between exchange and completion?
Most lenders require 5 working days’ notice to arrange payment of mortgage funds, this usually determines the gap between exchange and completion however sometimes parties agree on a longer gap. Most clients are comfortable with a week before completion as it allows time to make final preparations for completion day such as notifying utility companies and arranging to forward post.
A shorter gap can also be agreed in certain circumstances. Your solicitor will check how much time is required between exchange and completion and ensure sufficient time will be allowed before proceeding with exchange of contracts.
It is also possible to exchange and complete on the same day if needed, this is known as ‘simultaneous exchange and completion’. This requires planning in advance and is usually only possible if there is no wider chain involved.
What does my solicitor do on completion day?
If you are selling a property, your solicitor waits to receive the purchase funds from the buyer’s solicitor. Once received, they will contact you to confirm this and check whether you are ready for the estate agent to release the keys to the buyer. The solicitor will also arrange to repay any outstanding mortgage on the property.
If you are buying a property, your solicitor will send the purchase monies to the seller’s solicitor and await confirmation of receipt. Once confirmed, they will contact you to confirm you can collect the keys from the estate agent. In the background, they will then arrange to submit your stamp duty return to HMRC and payment of the stamp duty owed. They will then attend to registration of your ownership of the property at HM Land Registry.
Can I do building work between exchange and completion?
Between exchange and completion the property still belongs to the seller. It is possible to do building work between exchange and completion but it must be agreed with the seller in advance via a ‘Key Undertaking’. This is an agreement to allow you access to the property to carry out specific pre-agreed works. It is usually agreed that you must return the keys to the estate agent at the end of each day.
Can things go wrong between exchange and completion?
It is very rare that things go wrong between exchange and completion but it can happen and certain things are beyond your solicitor’s control. For example, banking systems can go down which can affect the transfer of completion funds between solicitors. A key undertaking is sometimes agreed in such situations to allow buyers into their new properties before completion is finalised.
Call us for a conveyancing quote
When you’re ready to move, call us for a conveyancing quote. We work on fixed fees so you have additional peace of mind.