Before contracts can be exchanged, a few boxes need to be ticked as follows:
- your mortgage offer needs to have been issued and sent to your solicitor
- all search results and survey reports need to have been received and reviewed
- all replies to enquiries need to have been received.
- your solicitor should have sent you their report summarising the terms of the contract, the entries in the title, the results of the searches and so on. You need to read this carefully and decide whether you wish to proceed with the purchase based on its conclusions. If you have any queries, this would be your last chance to raise them.
- your solicitor should have sent you all necessary documents for your signature and you should have sent them back
- you should have sent the deposit funds to your solicitor
- a completion date needs to have been agreed between the parties. This is usually a week after exchanging the contracts as most banks would require 5 days’ notice before releasing the mortgage funds.
The exchange of contracts is one of the two key moments of your purchase process. This is the moment when the deal becomes legally binding on both sides and neither side can withdraw without significant consequences.
The actual “exchange” of the contracts in reality is a phone call between the solicitors acting for the seller and the buyer during which they read out the signed contracts by their respective clients to make sure they hold identical copies, insert the completion date, the available deposit, any agreed sums for additional items such as furniture or allowances and reductions in relation to any indemnity policies. Finally, they date and time the contract which makes it effective from that moment precisely.
From this moment, the risk for the property passes onto the buyer (unless it is a new build property, in which case the risk passes from completion) and that is why they need to place on risk a buildings insurance policy from this date.
Exchanging the contracts is legally binding. This means that if the buyer no longer wishes to proceed with the purchase after contracts have been exchanged, then they will lose their deposit and may also need to pay interest and compensation to the seller. The same goes for the seller, if they decide not to complete the sale, they would have to return the deposit to the buyer and may also need to pay any costs, compensation and/or interest to the buyer.
In certain unusual circumstances, exchanging the contracts and completion can happen on the same day.
It is important to remember that before contracts are exchanged, the deal is not 100% certainly going ahead so it is not reasonable to give notice to your current landlord (if you live in a rented accommodation) or your current employer (if you are changing jobs) yet. Even if you have informally agreed a completion date with the seller in advance, this date is not certain until after contracts are exchanged. Only then can you tell your removal company, landlord and employer when your move-in day would be.
You can use Appendix 12 of Part One of the book “How to buy your first home in England (and Wales)” to find ideas and create your own to-do list with tasks to complete at this stage of the process.