Exchanging Contracts

17/01/2018

Exchanging contracts is the key moment in the conveyancing process; even more so than completion (read what happens on completion). Once your solicitor has exchanged contracts with the seller's solicitors you will be contractually bound to buy the property you have been working so hard to buy and so is the seller bound to sell it to you. You can read exactly what legal work is needed to be completed prior to exchange of contracts here - What does a solicitor do for the buyer

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Until contracts are exchanged either buyer or seller can pull out without any financial penalty to pay, other than to cover their own costs for solicitors (including searches and disbursements), surveyors, and mortgage valuations. This is why it is so important to protect yourself from financial losses by getting no sale, no fee cover from your solicitors.

In this article we cover over some of the most important points about exchange of contracts including:



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What does exchange of contracts mean for the buyer and the seller?


The standard terms of contract state...

"The buyer is to pay or send a deposit of 10 per cent of the purchase price no later than the date of the contract"


The payment of the deposit from the buyer to the seller, allows for the exchange of contracts to take place and the balance of the purchase money is paid on the day of completion (normally paid the day before). The 10% deposit isn't paid to the seller, it is held in the solicitor's client account until the day of completion.

5 things you need to do to exchange contracts


    1
    Return your signed documents to your solicitor:

  • Contract;
  • TR1 transfer document;
  • Stamp Duty Land Tax (SDLT) return; and
  • Mortgage deed (if applicable)

Should the documents be emailed or sent in the post?

You solicitor requires 'wet ink' signature on these documents so make sure to send them back to your solicitor by special delivery (not recorded as it is slower than special).


    2
    Pay your solicitor the 10% deposit
If you are selling and buying the sale deposit is normally sufficient to fund the purchase deposit, however ask your solicitor to confirm with your seller's solicitor.

If you are buying with only a 5% deposit then as long as your solicitor has agreed this with the seller then you just need to transfer the 5% to your solicitor.

    3
    Have a completion date mutually agreed with the chain
If you haven't already agreed a completion date at the outset, then the best time to discuss when you want to complete is when you receive your report on title from your solicitor. The reason for this is that until this point, you don't know how close you are to exchange and the report on title stage is the final part prior to singing everything ready for exchange.

    4
    (if freehold) Take out Building Insurance cover; and
Buyers are liable to insure freehold properties from exchange, not completion.

    5
    Give your solicitor written consent to exchange.
If you do not exchange on a set day, then you must give your solicitor written consent to exchange on the next day. Your solicitor cannot use your consent from he previous day as your circumstances may have changed.

How much do you need to pay to exchange?

You need to pay a 10% deposit on exchange of contracts. The buyer gives the deposit to their solicitor and this is then paid across to the seller's solicitor once exchange of contracts take place. If you are selling and buying then the deposit on the sale is normally used to fund the deposit on the purchase. If you only have a 5% deposit it needs to be agreed with the sellers that you'll not be paying 10%.

Read more about what to do when exchanging with a 5% deposit.


How do solicitors exchange contracts?

Under the laws of England & Wales, exchange of contracts takes place once the buyer's solicitor has completed all of their investigations into the property to ensure the buyer is fully aware of any known legal pitfalls.

Before your solicitor exchanges contracts they will:


  • Pre-Completion Check these are to ensure there have been no changes to the the legal title of the property since we were first given the title information at the start of the transaction;
  • Verify Seller's Solicitors Bank Details using the Lawyer Checker system, solicitors can verify the sellers solicitor's bank account details. Delays can arise if the seller's solicitor does not frequently complete conveyancing transactions or there is an alert related to the bank account;
  • Bankruptcy Check a bankruptcy check is completed on all purchasers when obtaining a mortgage;
  • Confirm receipt of deposit the solicitor requires the deposit to be cleared to use within their client account before they can exchange;
  • Give release up (and down the chain) once the solicitor has given the release that they are ready, they will wait to hear back from the otherside confirming the same; and
  • Authority to exchange the solicitor gets authority from their client to exchange and then exchange can take place.

The actual process of exchange of contracts happens over the phone between the buyers and sellers solicitor. Both will verbally agree the property being sold, the buyers and sellers names, the price, deposit to be paid, completion date, additional conditions/amendments and then confirm that exchange of contracts can take place. After this call the properties are formally exchanged and the solicitors undertake to send to each other their client's signed contracts (hence the name - Exchange of contracts).

Can you pull out after exchange of contracts?

Once you exchange contracts you are legally bound to buy the property however you can still pull out (and face the financial costs).

This is the reason why your solicitor must ensure they have completed their full due diligence in relation to the property and your finances (including mortgage offer and your own funds). Read our article on what happens if you have to pull our after exchange of contracts or call us on 0333 344 3234.


When should you hand in your notice to your landlord?

You should never hand in your notice until you have exchange contracts. If you do hand in your notice before you exchange then you run the risk of the transaction falling through before exchange and leaving you with no where to live. Then again, if you wait until you exchange contracts before handing in your notice then you could end up paying mortgage and rental payments for a short period of time - depending on how long you have in between exchange and completion.


Can I exchange and complete on the same day?

It can also make the process more stressful for you. Trying to book home removals or take time off to move is hard enough as it is, however when you have one day for exchange and completion to take place you are faced with the challenge of keeping everyone involved working to provisional times that keep getting pushed further back.

It is possible to exchange and complete on the same say and this is called a Simultaneous - although you should steer clear of doing this. The average time between exchange and completion is 2 weeks and in this time you'll know the completion date and can book everything knowing your completion date won't change. As a first time buyer, you'll more than likely need the time because you'll be handing in your notice on your rental and won't want to do this until you exchange because you don't want the purchase to fall down and end up being forced to leave your rental.


Help to Buy ISA If you are thinking of using your Help to Buy ISA to fund your deposit then you won't be able to get the Government bonus. Read this article to find out what to do in order to get your HTB ISA Bonus.

Do you need help Exchanging Contracts?

It can be very stressful in the run up to exchanging contracts and all too often solicitors may not be providing the support you need. We support and hold our clients hands right to the point you collect your keys so please call us if you need help and we'll do what we can - 0333 344 3234 (local call charges apply).

Don't forget to download your free 'Exchange Checklist'


From organising your buildings insurance to signing off on the seller's protocol forms, our checklist has everything covered so you don't miss anything.

Reduce the chance of missing something by downloading your FREE Pre-Exchange Checklist - Created by Solicitors



Related News Articles

 
Attended Exchange of Contracts: Beware the Pitfalls
27/11/2017
What happens after completion
12/01/2018
What happens on completion day?
02/05/2018
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