Exchanging Contracts on a House: What is the Process?
When you’re selling or buying a house, there are two big milestones that stand out in the process: the exchange of contracts and the completion of the sale.
Up until the exchange of contracts, no element of the sales process is legally binding – that means that either party can back out with minimal consequences. However, once the contracts have been exchanged, and the exchange deposit has been paid, backing out is rare. This is because the seller can rescind the contract, keep the exchange deposit and even claim damages, if they go through the court.
How does the exchange of contracts work?
You’ll usually exchange contracts anywhere between 7 and 28 days prior to the completion date, but it can take up to eight weeks for the exchanging of contracts to actually happen.
The buyer’s solicitor and the seller’s solicitor will generally exchange contracts verbally over the phone first, to check that the two contracts are identical. Straight after this, they’ll send a hard copy in the post to each other, to present to their client.
You can opt to exchange contracts on the same day that your sale completes, but this means the sale isn’t legally binding until the date you’re due to move. This is a risky decision, as the danger of the sale falling through is increased right up until the last minute, and it can make arranging removals more difficult too.
What is an exchange deposit?
The exchange deposit is the amount of money the buyer pays in order to secure the sale of the house – it often sits at 10% of the final offer the buyer made on the property, but this can vary. The buyer’s solicitor will obtain the deposit funds from the buyer, and arrange for them to be transferred to the seller’s solicitor at the exchange of contracts stage.
What should the buyer do to prepare for exchanging contracts?
If you’re buying a property, there are certain things you’ll need to tick off before you can exchange contracts. Here are the key takeaways:
- Commission an independent survey of the property, and check the results for any glaring issues which might affect your offer on the house.
- Make sure you’ve got a formal mortgage offer in writing.
- If you’re buying with a Help to Buy ISA, inform your bank when you’ll be making the purchase so you can claim your government bonus.
- Gather together the funds for the exchange deposit, so that you’re ready to transfer it to your solicitor – who will pay the seller’s solicitor.
- Arrange buildings insurance for the property, so that you’re covered from the date of completion.
- Look over the contract your solicitor has provided and make sure you’ve resolved any/all queries before you sign.
What should the buyer’s solicitor do to prepare?
There are also crucial tasks for the buyer’s solicitor to complete, before the exchanging of contracts can begin. If you’re buying a house, your solicitor will need to:
- Complete extensive local searches, to identify any issues with planning permission or flood risks and etc.
- Look over the survey results, and raise any consequential queries with the solicitor of the seller.
- Check the contract sent over by the seller’s solicitor for any irregularities.
- If the contract is sound, pass it on to the buyer to be signed.
- Arrange for the payment of the exchange deposit, so that the house is officially taken off the market.
- Agree on a completion date which is suitable for both parties, with the seller’s solicitor.
It is for these tasks you’ll pay conveyancing fees for.
What should the seller do to prepare for exchanging contracts?
When you’re selling a property, there’s a different list of things to do before you can exchange contracts. These include the below:
- Check the results of your buyer’s survey, and be prepared to negotiate on price if there are any unforeseen issues.
- Put together a folder of all the relevant paperwork for your house, for example proof of planning permission for any extensions.
- Let your building’s insurance provider know that you’re planning to move, and cancel your policy.
- Make sure your finance is sorted for your new property; get your mortgage statement ready and ensure your deposit funds are organised.
What should the seller’s solicitor do to prepare?
If you do sell your home via a traditional estate agent, your solicitor will need to do the following, in the lead up to the exchange of contracts:
- Gather the title deeds and, if applicable, details of the remaining mortgage, so that you’re ready to proceed with the sale.
- Agree on a convenient completion date with the prospective buyer.
- Write up a contract to document the sale, run it through with the seller and then the buyer’s solicitor.
- Make sure that everything is in order with the buyer’s finances, and their deposit payment.
What can hold up the exchange of contracts?
Ultimately, if the above points aren’t carried out, then it can delay you exchanging your contracts, which, if you’re a buyer, leaves you at a greater risk of gazumping.
Other things can hold up the exchange of contracts include:
- Mortgage lenders: If the buyer hasn’t yet sorted out a mortgage, then that can delay the process of exchanging contracts
- Unanswered queries: If either the buyer or seller’s solicitor hasn’t received a satisfactory answer to their enquiries, they will hold off the exchange.
- Complex transactions: In same cases, transactions can be complex, which can slow the whole process down.
Average time to exchange contracts
On average, exchanging contracts for a property takes between 8-12 weeks, but if the buyer isn’t in a chain, then this process can be completed much quicker. Of course, there are also exceptions where it can take longer than 12 weeks to exchange contracts.
Are exchange and completion the same thing?
Exchanging contracts on a house and the completion of the sale are not the same thing at all, but they can sometimes be carried out on the same day.
Exchanging contracts simply makes the sale of the property legally binding, and ties both parties (the buyer and the seller) into a written agreement. Completion doesn’t take place until the completion date, otherwise known as moving day. It marks the official transferral of ownership between the seller and the buyer.
We’re the most regulated cash house buyer in the industry, so you can trust that we’ll give you a fair offer for your home, and have the sale completed in as little as 7 days. To sell your house fast, get in touch with us today to receive a free quote.