The exchange of contracts is one of the final stages of buying or selling a house and makes the transaction legally binding. Many people find this process stressful, as it is generally the last point at which a property transaction may go wrong.
In this article we will lay out what happens during exchange of contracts on a property, the things buyers need to take care of before exchange of contracts, some of the common issues that can occur and what happens if a buyer or seller attempts to back out of their side of the deal.
What does the exchange of contracts involve?
Exchange of contracts is the process where the seller’s solicitor produces a contract of sale containing all the details of the property deal, including who the buyer and seller are, the agreed price, what is included in the purchase and the date when the sale will be complete.
The buyer’s solicitor will then review the contract, make sure the buyer is happy with all the details contained in it and that no important issues have been left out.
Once both parties are happy with the contents of the contract of sale, the buyer will need to arrange to transfer the deposit to their solicitor’s account, ensuring the funds will be cleared in time for exchange of contracts to take place.
Once this has been done, both parties should then sign their copies of the contract. The buyer’s and seller’s solicitors will then make sure that the copies of the contracts both hold are identical – usually by reading them out over the phone. They will then normally post the contracts to each other, officially exchanging contracts.
It is important to understand that until you exchange contracts, neither side has a legal obligation to go through with the sale. However, as soon as contracts are exchanged, the terms of the sale become legally binding and the buyer becomes liable for the property.
What needs to happen before you exchange contracts?
Before exchange of contracts takes place, the buyer should:
- Have a mortgage valuation and any searches and surveys they require
- Have been offered a mortgage in writing
- Have arranged their deposit
- Have organised buildings insurance (as the buyer is liable for the property as soon as contracts are exchanged)
How long does it take from exchange of contracts to completion?
“Completion” refers to when the rest of the sale price is transferred to the seller, the keys are exchanged and the buyer can move into the property. It normally takes around 7-28 days from exchange of contracts to completion, although it is possible for this to happen faster, or even on the same day in some circumstances.
Issues that can occur during exchange of contracts
There are various issues that can occur during the process leading up to exchange of contracts that can slow down, or even entirely derail the process.
Common problems include:
- The buyer or seller changes their mind and pulls out of the deal
- The seller increases the price or the buyer reduces their offer
- The seller gets a higher offer from someone else
- The searches carried out during the conveyancing process uncover a serious issue which needs to be taken into account
- The buyer has difficulty getting a mortgage
- You are in a property chain and a deal somewhere up or down the chain falls through, affecting your deal
When these issues occur, getting the right advice from your solicitor can often allow you to find a solution that allows the deal to still go ahead if at all possible.
What can you do if the buyer or seller attempts to back out?
Once you have exchanged contracts, the buyer is legally bound to buy the property and seller to sell it. If the buyer fails to complete, they will lose their deposit and the seller can sue them. Additionally, if the seller goes on to get a lower price than you offered them from a new buyer, you may have to pay them the difference. If the seller fails to complete, the buyer can demand their deposit back and sue them.
Get a reliable conveyancing team to handle your property deal
Bird & Co Solicitors is a long-established law firm offering conveyancing services for properties across England and Wales from our 3 offices in the East Midlands. Our conveyancing team regularly handles all kinds of residential property transactions, including buying and selling property, buying, selling and renewing leases and conveyancing for remortgages. We are accredited by the Conveyancing Quality Scheme, proving that our conveyancing service meets the highest standards.
To find out more about our conveyancing services, call us today on 01476 591711 or use our contact page to find details of your nearest office.