What's The Difference Between Exchange And Completion?
Property Buying & Selling Guide To Conveyancing
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What's The Difference Between Exchange And Completion?
It doesn’t matter if you are buying or selling a property through DIY conveyancing or the usual route, using an estate agent or a cash buyer; you will come across the exchange and completion process.
Exchange is when it becomes legally binding, but you may ask yourself which came first, the chicken or the egg.
Well, the exchange came first.
The exchange of contracts shows a seller that the buyer is committed as they pay a deposit and begin to get down the gritty world of solicitors.
Find out below as we delve into all things exchange and completion and what it means for buyers and sellers.
What Is An Exchange Of Contracts?
The exchange of contracts is legally binding between buying and selling parties under English law. This process is usually carried out by solicitors and conveyancers trained in property transactions.
The exchange of contracts can only occur after a particular set of criteria has been met, including carrying out necessary searches and agreement to contract terms.
The process is carried out by solicitors and conveyancers who will read out contracts over the phone in a recorded conversation to ensure the arrangements are the same.
The contracts will then be posted to the other solicitors, and once the warranty has been exchanged, the homeowner and potential buyer are now legally bound to carry out the transaction.
Why Is It Necessary To Exchange Contracts?
It is necessary to exchange contracts to ensure the process becomes legally binding.
If the buyer does not complete it within two weeks, the seller can rescind their contract, and the buyer will forfeit their deposit.
The seller will then be able to resell their property to another buyer and could even pursue you for losses incurred if they do not reach the same sale price.
When Do You Need To Exchange Contracts?
As the buyer, you can exchange the contracts if you are committed to purchasing the property after you have made your offer and all necessary documents have been obtained.
You should only exchange contracts once:
- The offer has been agreed upon.
- Relevant Law Society forms (TA6 & TA10) have been inspected.
- Surveys have been carried out.
- Your mortgage lender has carried out a house valuation.
- Your solicitor has carried out searches.
- The EPC has been checked.
- You have enough funding in place for the house deposit.
- You have a completion date in mind, and it has been agreed upon.
- You have put building insurance in place.
- You have read through the contract, asked any relevant questions, and signed it once it is complete.
When Do You Need To Exchange Contracts?
You will not need to exchange contracts; your solicitor will do this. Usually, this is done over a phone call, ensuring the arrangements are identical, and then the contracts will be posted. However, it may be done in person, although this is rare.
What Is Completion On A House?
The completion process occurs on a date predetermined during the exchange of contracts. It is the last step in the property transfer process, and it is the day on which the ownership is legally transferred from seller to buyer.
The buyer will get the keys to the property, and the seller must move out of the property. It is also the day the money is transferred from the buyer to the seller.
What Should You Do Before You Exchange Contracts?
Although similar, the process will differ slightly depending on if you are a buyer or seller. Property ownership can only be transferred once contracts are exchanged, so checking that any paperwork has been completed is vital.
Buyer - Before Exchange Of Contracts
Because the exchange of contracts is a legally binding process, you should ensure that everything is in order before signing anything:
Your solicitor or conveyancer should do all parts of the conveyancing process, but you should always communicate consistently with them to ensure a smooth transaction.
You must ensure that your solicitor has completed any searches, which are the enquiries with local authorities for more information on the property.
You will need to agree with your solicitor on a completion date that suits you before you exchange the contracts, as the solicitor will agree with the seller’s solicitor on a completion date that will be set in stone.
We also recommend that you read over the contract with your solicitor present and ask any questions about it if you are unsure, as this will ensure you know the process better, and you won’t be able to read it once the exchange has been completed.
This also applies to ensuring you know what’s included in the property offers, for example, any fixtures, fittings and if you need to pay for a holding or contract deposit in case the seller requires one — which means having the funds available (£500 to £1000).
If the seller attempts to renegotiate the purchase price, you should seek advice from your solicitor, who will help you negotiate them back up.
You will need to ensure that you have your mortgage in principle, which is a written estimate from a mortgage lender that indicates how much money you can borrow.
As well as ensuring that you have the correct funds for your mortgage deposit.
You must ensure you are covered if the seller pulls out before the exchange, as you will have no legal right to recover any costs from them.
Getting indemnity insurance coverage will ensure you can recover any wasted costs, but your solicitor will be able to provide you with more insurance.
You will also need to organise building insurance and ensure it is valid from the exchange date.
Seller - Before Exchange Of Contracts
As the exchange of contracts is a legally binding contract, you will need to ensure that all of your information is in order before you sign the contract:
You should ensure that your solicitor has your signed contract and signed transfer of title document and that the deposit has at least been lodged with the buyer’s solicitor and is ready for transfer.
Your conveyancer should also have an estimate of any mortgage redemption costs, especially if there are any early redemption charges you may have to pay.
You will also need to ensure you have responded to all enquiries and provided all necessary documentation:
- Warranties.
- Guarantees.
- Certification of Works.
- Signed Contract.
- Signed Transfer of Title Document.
You will also need to confirm a completion date with your solicitor.
What Happens After The Contacts Are Exchanged?
Once the contracts have been signed and exchanged, the buyer is legally bound to purchase the property. The solicitors will need to ensure that the transfer of ownership has been registered with the land registry.
If the property is tenanted, the buyer must tell the freeholder that they are the new owner.
Usually, the period between contracts exchanged and completion will be when the buyer confirms removals, packs their belongings, plans the move, and contacts utilities and services to inform them of the property transfer or end of service.
The buyer’s solicitor will ensure that the mortgage lender is on track to transfer the funds on completion and draw up a completion statement.
The property seller will also need to confirm removals and pack, notify utility companies and ensure everything agreed to include in the purchase is left in place, set up mail redirection and leave a set of keys with the estate agent.
The seller’s solicitor will confirm the redemption amount with the mortgage lender and draw a completion statement.
Is It Possible To Exchange And Complete It On The Same Day?
It is possible to exchange and complete on the same day, although this differs from the path many homeowners choose.
The time difference between the two allows for necessary arrangements like property removals and ordering mortgage advances.
How Long is Between Exchange And The Completion Date?
The time between exchange and completion will vary depending on the speed of sale needed but generally will take 7 to 28 days, although it typically takes around five working days.
The exchange and completion period can be affected by various factors, including the length of a property chain or if the property is being bought for cash. Most cash buyers will speed up the process, making the completion day closer to the exchange.
It will also depend on the speed of your solicitors and their service.
If the buyer buys a new build property, there may be a much longer delay as the property may have yet to be built at the point you exchange.
If the seller has yet to secure an onward purchase, they can agree with a buyer to set a delayed completion date to allow them to find accommodation.
However, if the property buyer has a mortgage offer, they should be wary of the offer expiring as they are only valid for three to six months.
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