Whilst property professionals may refer to the terms ‘exchange’ and ‘completion’ with wild abandon, anyone who does not deal with property transactions on a daily basis, may not know what either of these terms, mean.
They are both very important stages of the conveyancing process, so it is essential that anyone buying or selling a property, understands the difference between the two.
When property professionals refer to ‘exchange’, what they are actually referring to is the physical ‘exchange of contracts’ between buyer and seller. For simplicity, we will refer to it as ‘exchange’.
Before exchange, the important thing to note is that both buyer and seller are free to walk away, at any time, and unless any special conditions have been agreed as part of a bespoke agreement, there is nothing either party can do about it. For this reason, exchange is a very important milestone, as it is at this point, that buyer and seller become contractually obliged: the buyer, to buy, and the seller, to sell.
In order for exchange to occur, there are a number of things that need to be in place:
1) The buyer and seller should have signed their respective parts of the contract.
2) The date on which the sale and purchase is to complete (the ‘Completion Date’) should be agreed in advance.
3) The buyer should ensure that their solicitor holds cleared funds in their firm’s client account, so that the deposit (usually 10% of the sale price) can be paid over to the seller’s solicitor, upon exchange.
4) The buyer should have arrangements in place to ensure that their solicitor will have the money required to pay the balance of the sale price, before the Completion Date.
Once both buyer and seller have got everything in order, their respective solicitors will proceed to seek an exchange of contracts. Depending upon the length of the chain of sales, this process can take from 15 minutes, to a few days, as it depends upon the availability of all of the solicitors within that chain.
Actual exchange occurs when the solicitors for the buyer and the seller have a conversation. During this conversation, they will agree the terms of the contract, including the Completion Date, the sale price and the amount of the deposit. Once this is done, the contract is dated, and the time of exchange will be noted. In addition, the buyer’s deposit will be paid to the seller’s solicitor.
Once exchange takes place, both buyer and seller are contractually obliged to honour their respective parts of the agreement – there is no walking away without potentially expensive consequences for either party. In particular, the seller may be entitled to keep the buyer’s deposit if the buyer breaches the contract.
As the risk of the property being damaged generally shifts from the seller to the buyer upon exchange, it is essential that the buyer puts adequate buildings insurance on cover from the date of exchange.
Once contracts have been exchanged, the buyer and seller now prepare for completion.
Completion refers to the moment when the contract terms are fulfilled. It is the day upon which the buyer pays over the balance of the sale price and the seller hands over the keys of the property.
Because the Completion Date becomes a term of the contract, upon exchange, it is essential that both parties are ready and able to complete on the agreed date, otherwise they risk being in breach of contract.
The time that completion occurs is always different, as it depends upon a number of things that are out of the solicitors’ hands, including:
- the time that mortgage monies are sent to the buyer’s solicitor; and
- the time it takes for money to move between the buyer’s and seller’s solicitors’ respective banks.
However, once the buyer’s money has reached the seller’s solicitor’s bank account, the seller’s solicitor will confirm to the buyer’s solicitor that completion has taken place. They will also contact the estate agent, to give them the necessary authority to handover the keys to the property, to the buyer.
Although this is a very condensed account of what actually happens when contracts are exchanged and on completion, we hope that it helps you to understand the difference between the two stages, and the meaning that they have to you, as a buyer or seller.