Once all the details have been agreed, the contracts between you and the buyer must be signed. The contracts are exchanged and the buyer pays a deposit. Once this happens, there is no more room for negotiation and neither side can pull out of the deal. The buyer may also become responsible for the costs of buildings insurance from the date you exchange contracts.
Before you exchange
Exchange of contracts is the stage when a property sale becomes legally binding on both sides. From this point on there can be no changes to the conditions of the sale and neither you nor the buyer can pull out. If you do so for any reason, you can be sued for breaking the contract. If the buyer pulls out after exchange, s/he will also lose her/his deposit.
It is therefore essential that:
- all the legal documents have been thoroughly checked
- any survey or homebuyer's report has been carried out
- any repairs or other work you agreed to do, have been completed before the completion date
- the buyer's mortgage has been formally arranged
- the buyer has the money for the deposit.
If you are buying a new property at the same time, you will probably need to exchange contracts on your new home at the same time as you exchange contracts on your old one. It can be difficult to get the timing right for everyone involved, particularly if you are involved in a chain.
Signing the contract
Once the contracts are agreed, your solicitor (or licensed conveyancer) will ask you to sign a copy. Ask her/him to explain anything you don't understand. The buyer signs a separate copy and your solicitors exchange the two copies. You probably won't need to have direct contact with the buyer on the day. Once you sign, the contract is legally binding. You have to sell, the buyer has to buy and the price can't be changed.
Most buyers have to pay a deposit of around ten per cent of the agreed price when contracts are exchanged. It is sometimes a smaller amount but only if this has been negotiated in advance. When contracts have been signed and exchanged, the buyer's solicitor will give the deposit to your solicitor. S/he keeps the deposit until the completion date when the deposit will be paid to you (or your mortgage lender) along with the rest of the purchase price.
If you are buying at the same time, it may be possible to put the ten per cent deposit you get from your buyer towards the deposit on your new home. If not, and you don't have enough savings to cover it, you may be able to arrange a separate short-term loan (a bridging loan). Alternatively, your solicitor may be able to arrange a deposit guarantee with an insurance company. In either case you normally have to pay a fee and will probably end up paying a high rate of interest.
If the property is freehold, the buyer usually becomes legally responsible for buildings insurance from the date contracts are exchanged. If the property is leasehold, the freeholder is normally responsible for arranging insurance but the buyer can be asked to pay her/his share of the costs involved. Ask your solicitor to check this and make sure the property is insured properly while you are responsible. If this is the case and the property is damaged between exchange of contracts and the completion date, the buyer's insurers will have to pay for any repairs that are needed. However, s/he is not responsible for your personal belongings so you should make sure your contents insurance is valid until you move out.
After the exchange
When you exchange, you should be given an idea of the completion date. This is usually between seven and 28 days after you exchange contracts but can be as little as 24 hours. Before the completion date the buyer's solicitor will carry out any final checks and organise the rest of the money for the purchase. While this is happening, you may need to:
- make arrangements to move out and arrange insurance for your new home
- inform your bank and other important contacts of your new address and/or arrange for Post Office mail redirection.
- inform the local council tax office, gas, electricity, water and telephone companies that you are moving. Ask for final readings to be taken and make sure that essential services are connected in your new home.
Iammoving.com provides a free service to inform utility companies and other important contacts of your new address.
The buyer may want to visit the property before the completion date, for example, to measure for carpets or get estimates for work s/he intends to have done. You can refuse to allow this and don't have to allow any work to begin until after the completion date.
Delays before exchange of contracts
There are many reasons why there may be delays before exchange of contacts:
- if the council hasn't returned the local searches
- if the buyer's solicitor hasn't provided information needed to complete the sale
- if the buyer is having problems getting a formal mortgage offer.
If there are any delays, contact your solicitor as soon as possible.