Some of the final stages in selling/ buying a home is the exchange of contracts and completion. Thorough preparation is key for exchange and completion. Keeping everything in order reduces daunting aspects. This approach also promotes smoother proceedings.
We will explore what exchange of contracts and completion mean. We’ll understand the actions between these two stages. Plus, we’ll share tips for a successful process and more.
What is exchanging contracts?
The exchange of contracts is crucial in property transactions. It legally binds both buyer and seller to the sale. Solicitors or conveyancers actively manage the process on behalf of both the buyer and the seller. They prepare two identical contracts for the buyer and seller. Each outlines terms of the property sale. These terms include the agreed-upon price, the legal descriptions of the property, and the date of completion.
Prior to the exchange, both parties have the freedom to negotiate, or even withdraw from the deal without significant penalty. Once both parties express satisfaction with the terms and sign the contracts, the solicitors or conveyancers execute the exchange. At this point, the buyer transfers a deposit, usually 10% of the purchase price, to the seller.
The exchange of contracts is binding. It legally obliges the seller to sell and the buyer to buy. The agreed terms must be respected. If either party backs out after this point, significant financial and legal consequences can follow. Thus, the exchange of contracts is a pivotal point that provides security and assurance for both the buyer and the seller in the property transaction process. You can read everything you need to know about estate agent contracts in our blog here.
Take a look below to get an idea on what will be included in the contract.
What tasks need completing before exchanging contracts?
Before exchanging contracts, you should complete several important steps to ensure a smooth transaction. These include:
Offer Acceptance: Initially, the buyer places an offer on the property, and the seller must accept it.
Hire a Solicitor or Conveyancer: Both the buyer and seller need to hire a solicitor or conveyancer to handle the legal aspects of the transaction. If you would like to read about what you need to know before choosing a conveyancer you can read our blog post here. We also cover in another blog a complete guide to conveyancing.
Draft Contract: The seller’s solicitor will draft the initial contract. It outlines the terms of the sale, including details about the property and the agreed price.
Property Searches: The buyer’s solicitor will conduct various property searches. These can include local authority searches, water and drainage searches, environmental searches, and more to uncover any issues that might affect the property or its value.
Property Survey: The buyer should commission a property survey. This is to identify any potential issues with the property, such as structural problems.
Mortgage Application and Offer: If the buyer is purchasing with a mortgage, they need to apply for and receive a mortgage offer from a lender. To confirm the property’s worth matches the borrowed amount, the lender conducts a mortgage valuation. If you would like to read more about mortgages you read our blog post here.
Review and Negotiate Contract: The buyer’s solicitor will review the draft contract and negotiate any necessary changes with the seller’s solicitor.
Sign Contract: Once both parties are happy with the contract, they will sign their copies in readiness for the exchange.
Agree on Completion Date: The buyer and seller must agree on the completion date. which is usually a week or two after the exchange of contracts, but can be the same day if necessary.
Remember, completing these steps properly is crucial. They should be done before the contract exchange, as the exchange makes the transaction legally binding. If you’re unsure about anything, always seek advice from your solicitor or conveyancer.
What is an exchange deposit?
The exchange deposit is a crucial part of the selling/ buying process. Generally, it represents 10% of the property’s purchase price, paid by the buyer to the seller upon the exchange of contracts. This deposit serves as a security measure, demonstrating the buyer’s commitment to the transaction. The seller’s conveyancer holds the deposit until completion day, when due payment is the remaining 90% of the purchase price.
Should the buyer withdraw from the deal post- exchange without a lawful reason, they risk losing this deposit and potentially facing further legal repercussions. Conversely, if the seller withdraws after the exchange of contracts, they could be liable to return the deposit and might be sued for breach of contract. Therefore, the exchange deposit plays a critical role in safeguarding both parties’ interests during the property transaction process.
What actions occur between the contract exchange and completion?
Finalise Mortgage Details: If the buyer is purchasing with a mortgage, they will need to finalise the details with their lender.
Prepare for your Move: Both the buyer and seller will need to prepare for the move. This includes arranging for a removals company, packing, notifying utilities and other services of the change of address, and so on. Take a read of our moving house checklist blog to help you.
Completion Statement: The buyer’s solicitor or conveyancer will prepare a completion statement, which outlines the final balance to be paid for the property. This includes the purchase price minus the deposit already paid, plus any additional fees and stamp duty.
Buildings insurance: The buyer should arrange buildings insurance for the property to start from the date of exchange, as they will be responsible for the property at this point.
Transfer of Funds: The buyer’s solicitor will arrange the transfer of funds so they arrive in the seller’s solicitor’s account on the day of completion.
Keys: The seller must collect all the keys to hand them to the estate agent. The buyer will then collect them on completion day.
What is completion day?
Completion day signifies the pinnacle of the property transaction process. On this day, both the buyer’s and seller’s conveyancing solicitors perform their final checks, and the buyer transfers the outstanding balance of the purchase price, usually through their conveyancer. This transfer marks the moment when the buyer legally becomes the property owner. Simultaneously, the keys to the property are handed over to the buyer. The conveyancer also ensures that all associated fees and disbursements are settled, leaving no financial loose ends.
The completion date is mutually agreed upon by the buyer and seller, typically ranging from a week to 28 days post the exchange of contracts. Many prefer to schedule completion on a Friday, providing the weekend buffer for the moving process. However, it’s crucial to consider that any hiccups preventing completion on a Friday would defer it to the following Monday. Additionally, Friday is a popular day for relocations, which could lead to higher demand and potentially higher costs for professional removal services.
For those seeking to expedite the process, it’s possible to exchange contracts and complete on the same day. This option streamlines the process but also heightens the stress levels, as you might only find out on the actual day that you’ll be moving. Consequently, coordinating with your removal company might pose a challenge due to the lack of a concrete schedule.
Tips for a successful exchange and completion
Choose the right solicitor or conveyancer: Make sure you hire a reputable and experienced professional to handle your legal work. They will manage all the necessary checks and negotiations, so it’s vital to have someone you trust.
Keep communication open: Regular communication with your solicitor or conveyancer and estate agent will help keep the process moving smoothly. Don’t be afraid to ask questions if you’re unsure about something.
Organise your finances: Ensure your finances are in order well in advance of the exchange. If you’re buying with a mortgage, have your offer in place.
Confirm the completion date: Make sure you’re clear on the agreed completion date and arrange your moving plans accordingly.
Be prepared: Pack in advance and don’t forget to label your boxes to make unpacking easier.
Keys: If you are the seller make sure you collect all your keys and if you are a buyer confirm when and where you’ll be able to collect the keys to your new home.
Double check details: Confirm all the details with your solicitor to ensure there are no surprises. In addition, confirm the removal company has all the right details for the move.
Keep your phone handy: Stay reachable on completion day to deal with any unforeseen issues promptly.
Inform the relevant people: You should get in touch with your utility companies to let them know you won’t be at that property anymore. You should also cancel any direct debits or standing orders for your home and redirect your mail. If you would like an ultimate checklist of who to inform of your new address read our blog post here.
Have your documents ready: You should also check that you have all the necessary documents to hand. Such as, your mortgage paperwork, the title deeds to the property, and any guarantees or warranties for work that has been carried out on your home. Take a read of our blog where we cover all the documents needed to sell a house.
Summary
In summary when you exchange contracts that means the sale becomes legally binding and completion is when the buyer pays the funds to the seller, the keys are handed over and you move out of your home. It is worth mentioning that if either party fails to complete on the agreed date, they may be liable to pay compensation to the other party. So, follow the steps above to make sure you are prepared to sign the contract and ready to move out smoothly on completion day. If you want to know more about the processes involved in selling your home, read our step-by-step guide here.
