Exchange of Contracts
What does 'exchange of contracts' mean?
When two solicitors representing the seller and the buyer swap the signed contracts and the buyer pays the deposit, this is called an exchange of contracts. Once the seller and the buyer exchange contracts, the agreement becomes legally binding, and no party can back out of the deal.
What is the significance of exchanging contracts?
This stage is significant as it marks the point at which both buying and selling parties are legally bound to complete the transaction. It can also set a date for completion and confirms that all the necessary paperwork is in place for completion. After the exchange, if either of the parties pull out of the deal, then there would be penalties.
What happens when you exchange contracts?
In the olden days' solicitors used to physically meet for exchanging / completing contracts, but that practice is rarely being practised now. This normally happened on a Friday as solicitors would gather their papers and cheques to meet in the other sides firm, to conclude as many conveyancing matters as possible. The closer the other side was, the better. Now things are finalised by conducting verbal agreements over the phone.
During the exchange and completion of contracts, the solicitor reads out the contract over the phone, and that conversation is recorded. The solicitors ensure that the contracts are the same and then send them to each other.
What is completion?
Completion is the final phase of the property purchase/sale process. It happens when the ownership has been transferred successfully to the buyer. And when the seller's solicitor ensures that the seller is in receipt of whole purchase monies. Upon completion, the buyer gets the vacant possession along with the keys by 1 pm of the completion day. On the completion day, the seller should leave the property by 1 pm, unless otherwise agreed.
Difference between Exchange and Completion
As the exchange word implies, it is an exchange of the contracts between the solicitors which legally binds the seller and the buyer. Completion is the day both parties transfer legal ownership, and the buyer moves in.
The buy/sell transaction is not legally binding until the exchange of contracts. Either party can withdraw before the exchange of contracts but there will be a penalty if it's done after the exchange.
How long do exchange and completion take?
The exchange of contracts depends on the extent of the property chain but once complete, your solicitor then confirms the legal completion date to you.
The longest part of purchasing a home is an offer being accepted and exchanging contracts, as it can sometimes take several months. In order to speed things up, you have to be well organised, respond to all queries quickly and inform your solicitor and estate agent if you are travelling and unavailable. However, fortunately, when the contracts have been exchanged, the solicitors will agree a completion date.
Generally, people set completion dates for two weeks after exchange. However, this is only a guideline. If the buyer and seller are not in a hurry to move, then they can ask for more time. Sometimes people even complete in less than two weeks. If you set a date after two weeks, it can give you more time to organise everything and change your address information.
Does completion have to be on a Friday?
Most completions happen on a Friday which is a tradition dating back a number of years. People think moving in at the weekend is better as this way they won't have to take any time off work. Most buyers prefer to move in on the last Friday of the month so their first mortgage payment coincides with their salary every month. However, there is no given rule, guidelines or law for completing on Friday. In fact, on the contrary, it is advised to avoid completing on a Friday.
Why completing on a Friday is not a good idea?
Even though completing on a Friday is the most popular option, there are a few drawbacks to it which you should absolutely know.
Sometimes, banks money transfer system can get overloaded, which usually happens on the last Friday of the month. So your transfers should happen before Friday as you wouldn't want to become homeless for a weekend.
If you move during the week, then you have the advantage of telling your solicitor to resolve any issues occurring during the move.
Many moves get delayed because the money doesn't arrive in time. So this is one good reason to avoid completing on a Friday.
Fridays are known to be peak time for conveyancing frauds, also called the "Friday afternoon scam". This scam usually targets solicitors' emails.
Cybercriminals try to hack into solicitor's email to divert their client's funds. They are known to target Friday afternoon as it gives them time to avoid weekend detection.
Furthermore, if you move and there is a problem, then it's more difficult to hire anyone to fix it on a Friday or over the weekend.
Another interesting fact is that most people move on a Friday so they can unpack over the weekend, but the reality is that it's going to take a bit longer. This means that the moving company will be busier on Fridays compared to weekdays. This will only increase the cost of your move.
Buying and selling a house requires time and patience. You have to be careful and attentive during the whole buy/sell transaction. Make sure to do your own research about exchange and completion so you can decide on a completion date that is the best fit for you.
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