The final two landmark milestones in the UK to reach in the property transaction process are exchange of contracts and completion.
To put it simply - “exchange” is the point at which home buying becomes legally binding between the buyer and seller, whereas “completion” is the date when a property transaction is legally finalised and the parties physically move and transfer the legal ownership of the property.
Here’s exactly what exchange and completion mean and the points that you need to understand about them.
What does exchange of contract mean?
When you exchange contracts, you formally agree to buying the property.
The exchange of contracts, is the step in the property buying process where the sale is legally binding for both the seller and the buyer. This event occurs before the completion date, although it can happen on the same day as completion.
After both parties’ solicitors have settled on their contracts and have no more queries that need answering, you will have to agree to and sign your contract and then following this the exchange can take place.
Exchange mostly happens over the phone these days. Both solicitors will look over the contracts and recite them over a conversation to evidence that the contracts are in order.
What would happen if either parties pulls out?
Once the parties have exchanged contracts and the deposit has been paid, they can't back out of the deal.
However, if the buyer decides to pull out:
· the seller will be able to keep the 10%
· the seller can sue for breach of contract
· the buyer will be liable for interest on the unpaid purchase price, conveyancing fees or additional costs
If the seller chooses to pull out:
· the buyer can sue for compensation on costs and interest on the deposit paid
In short, there will be penalties if either party decides to withdraw from the deal.
When do I exchange contracts?
You usually exchange contracts between 7 and 28 days before completion – though you can exchange contracts on the day of completion.
What is Completion?
Once the exchange of contract is complete, the solicitors will agree a moving date, commonly referred to as a completion date. Usually this was a week after exchange, but it can be anytime as agreed by the buyer and seller.
Completion is the final stage of the home-buying process. When legal ownership of the property is transferred to the buyer, the balance of the sale price is paid, the keys are handed over and the property is legally yours.
What happens on the day of completion?
On completion day, your solicitor confirms the transaction and will arrange for money to be transferred to the seller’s solicitor. If you’re the seller, you’ll sign off mortgage completion statements.
Ideally, all the buyers and sellers in the chain complete on the same day, otherwise you might have to wait for the seller to have completed buying their new home before you can move in.
Other things that happens on completion day:
· Both solicitors make final checks, and then the buyer’s solicitor will transfer the purchase money via the banking system to the seller.
· When the seller’s solicitor receives the full purchase funds, they will confirm to - their client, the buyer’s legal representative and the selling agent that the sale has completed.
· The seller is normally bound to give vacant possession by 1pm, so they will have moved out on the morning of completion day.
· The buyer will be notified of the completion, and they can then move into the property.
· Once the sale has completed, the buyer is liable to pay any Stamp Duty Land Tax.
It’s standard practice for completion to happen 7 to 28 days after exchanging contracts.
However, there is really no fixed period for how long it should take between exchange of contracts and completion of the sale. It is completely up to the discretion of the buyer and the seller.
In some cases, people exchange and complete on the same day – which is getting common. It speeds the process up and you don’t have to pay a deposit on exchange of contracts. However, there are disadvantages – it can be stressful and you don’t certainly know that you are moving until the day that you move.