The exchange of contracts is a significant milestone in any property purchase, marking the moment when both the buyer and seller become legally bound to the transaction. However, for those unfamiliar with the process, or even for those who have been through it before, the intricacies of what actually happens during the exchange of contracts can be somewhat confusing. In this article, we’ll aim to demystify the process and provide a clear understanding of what takes place.
What is the exchange of contracts?
The exchange of contracts is the process by which the buyer and seller of a property agree to the terms of the sale and become legally bound to the transaction. This is often the final step in a property purchase, although completion – when the keys to the property are handed over and the payment is made – can take place a few days or weeks later.
What happens during the exchange of contracts?
The exchange of contracts usually takes place during a telephone conversation between the two parties’ solicitors. During this conversation, the solicitors will go through the contract with the other side, ensuring that all the terms are agreeable.
Once both sides are happy with the terms, the contracts are physically exchanged, usually by post. This exchange of physical contracts is where the term ‘exchange of contracts’ comes from.
Both the buyer and seller are legally bound to the contract as soon as the contracts are exchanged. This means that if either party pulls out of the transaction after exchange, they can be subject to financial penalties. The deposit paid by the buyer (usually 10% of the purchase price) is also paid at the point of exchange.
What happens after the exchange of contracts?
After the exchange of contracts, the completion date is agreed. This is when the balance of the purchase price is paid by the buyer and the keys are handed over to the new owner.
The period between exchange and completion is usually a few weeks, although this can be longer or shorter depending on the circumstances of the sale. During this time, the buyer will usually arrange for a survey to be carried out and will finalise their mortgage arrangements.
In conclusion, the exchange of contracts is a crucial part of the property purchase process and marks the point at which both parties become legally bound to the transaction. It is important to ensure that all the terms of the contract are agreed before exchange takes place and that both parties are aware of the financial penalties for pulling out after exchange. By understanding the process, buyers and sellers can feel more confident and prepared when it comes to exchanging contracts.