What is exchange of contracts?
The conveyancing contract contains all the terms and conditions of the transaction. This includes the identity of the parties, price, amount of deposit, and a list of the fixtures and fittings to be included in the sale. The contract also stipulates the completion date: i.e the day on which ownership of the property will formally transfer to you, and you’ll be able to move in.
In the run-up to exchange, your conveyancer will provide you with a copy of the contract and answer any questions. Once you are happy with the terms, you sign it, (both parties sign identical documents) and you’re ready to exchange contracts.
These days, exchange of contracts usually takes place over the phone. The solicitors for each party verbally confirm the terms and then immediately send the documents to one another.
How long does it take to exchange contracts?
On average it takes 8-12 weeks from agreeing an offer to exchange contracts.
Timing depends on the length of the chain you are in. For instance, if you are selling your existing property and moving to a new one, you won’t want to exchange contracts on the purchase until everything is agreed on the sale.
This is why an experienced conveyancer is invaluable: they will coordinate things for you, identify and help resolve any hold-ups, communicate efficiently with the other parties and make sure everything is in place at the right time, so the process is completed swiftly.
You can learn more about the stages of the conveyancing process here.
Can you exchange contracts without a completion date?
No. You need to have a completion date agreed before exchange of contracts can take place.
In some situations, such as cash purchases and buy-to-let investments where there is no chain, it may be possible to exchange contracts and complete on the same day.
However, in most transactions, there is a 1-2 week gap between exchange of contracts and completion. This gives a sufficient amount of time for the mortgage lender to send through funds (and for you to pack!).
Who holds the deposit on exchange of contracts?
On exchange of contracts, the buyer pays a deposit to the seller. The standard amount for this ‘exchange deposit’ is 10% of the purchase price. However, if you don’t have 10% available, for example if you are purchasing with a 95% mortgage and only have 5% available before completion, it is usually possible to negotiate the amount payable on exchange down to 5%.
If the buyer is unable to complete after the exchange of contracts, the seller gets to keep the deposit. And if the buyer has paid less than 10%, the seller will be able to go through the court system to claim the balance to make up the full 10%, plus compensation.
What happens if a buyer pulls out after exchange of contracts?
You must complete on the date agreed in the contract, and at the agreed contract time (under the standard conditions, this is 2.00 p.m. but can sometimes be varied if the parties agree).
If this doesn’t happen, the seller can file a ‘Notice to Complete’, which confirms that the buyer is in breach of the contract and gives them 10 days to rectify their breach.
If you eventually do complete but are late doing so, the seller can claim interest. For each day you are late, this is calculated at a daily rate of 4% above the Barclays Bank base rate (which is currently 0.1%) on the purchase price, less any deposit already paid, divided by 365.
If you fail to complete at all, you lose your deposit (see the section on deposits above).
For late completion and non-completion, the seller can claim reasonable damages for losses incurred as a result of the breach. Examples include wasted removal costs, loss of earnings, temporary accommodation and storage costs.
Where the seller has to find a new buyer and market prices have fallen in the meantime, the seller may also be able to claim compensation to reflect the difference between the agreed purchase price in the original transaction compared to the amount they eventually receive in the new sale.
What happens once contracts have been exchanged?
Your conveyancer contacts the mortgage lender to ensure the remaining funds are in place in time for completion. You should also get buildings insurance for your property as soon as the exchange has taken place. This is to protect yourself, as the buyer, against any damage that might be done to the property between the exchange and completion. Now that you have a definite date, for you, it’s a case of packing, perhaps booking time off work and getting your removals organised. You’re finally on your way! For practical information casting a light on all aspects of the conveyancing process, be sure to explore our information hub. Ready to make your move? Meet our team here or contact us directly for a conveyancing quote.