What’s the difference between Exchange of Contracts and Completion?
Posted on 15th October 2019
When you are selling or buying your property, you will probably find the words ‘exchange of contracts’ and ‘completion of contracts’ thrown around an awful lot, but you may be wondering what they mean.
The main difference between exchange and completion is that ‘exchange’ is the day that the seller’s and buyer’s solicitors make the transaction legally binding, whereas ‘completion’ is the day where the parties’ solicitors exchange money and legal ownership of the property, and the keys are given to the buyers (usually with vacant possession – i.e. the sellers will move out).
When does exchange of contracts happen?
Before either property solicitor will be willing to exchange contracts, generally certain matters have to be completed. The majority of these will usually be completed by the buyer’s property solicitors, and they can include searches, raising enquiries and checking that the buyer’s mortgage offer is in place, if required. Once these matters have all been dealt with, which can usually take in the region of 6 to 8 weeks, the property solicitors will speak to their respective clients and try to agree a date for completion. Once this has been agreed, and all the last-minute matters have been completed (i.e. checking that mortgage funds can be available in time), the property solicitors will then look at whether they are happy to exchange contracts.
Once contracts have been exchanged, the property purchase becomes legally binding. Up until this point, either party could change their mind, or decide to lower or increase the price (this is known as Gazumping and Gazundering, which you can read about on your property solicitor’s blog, here).
When does completion happens?
Once you have exchanged contracts, you will usually exchange on the basis that you will complete on a specific date. In some circumstances, such as when you are buying a new build, you may find that completion is ‘on notice’ which means that the developers will serve notice on the buyer that the property will be ready in a set amount of time, for example 10 days.
If you are selling and buying a property, you may need exchange and completion to happen at the same time on both. This process is known as exchanging in a chain, which means that your buyer, you, and your seller will all exchange and complete at the same time. It’s worth bearing in mind that in some property transactions the chain can go on and on and on, so it’s good to get an idea of the length of the chain up front, so that you can be prepared for how many people need to coordinate!
What happens on completion day?
Both property solicitors acting for the seller and buyer will ensure everything is in place, such as mortgage funds, final completion balance and any mortgage redemption statement. They will likely raise their final bills and prepare closure letters. Then, the buyer’s property solicitor will transfer the funds to the seller’s property solicitor. Once they have received these, the property solicitor will ring the buyer’s property solicitor to let them know, and then they will confirm that the estate agents can release the keys.
What happens if the buyer or seller pulls out after exchange?
At the point of contracts being exchanged, a 10% deposit becomes available to the buyer (unless another amount is agreed). Usually, this amount is ‘held to order’ by the buyer’s solicitors, on behalf of the seller.
If the buyer pulls out after the point where contracts have been exchanged, the deposit becomes available to the sellers, and they can keep these funds.
Alternatively, if the seller pulls out, the clauses that your property solicitors have included in the contract will come into action, such as penalty clauses and interest rates, plus the buyer will get their deposit back.
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