Exchanging contracts
This content applies to England only.
Housing laws vary between England and Scotland. Get advice relating to Scotland
Once all the details have been agreed, the contracts between the buyer and the seller must be signed. The contracts are exchanged and the buyer pays a deposit (usually ten per cent of the sale price). Once this happens, there is no more room for negotiation and neither side can pull out of the deal. You may also become responsible for insuring the property.
Before you exchange
Exchange of contracts is the stage at which a property sale becomes legally binding on both sides. From this point on there can be no changes to the conditions of the sale, including the price, without the other person's agreement. Neither you nor the seller can pull out. If you do so, you will lose your deposit. If the seller pulls out for any reason, you can sue her/him.
It is therefore essential that:
- all the legal documents have been thoroughly checked
- your survey or home buyer's report has been completed (if you are having one)
- any repairs or other work to be arranged by the seller before the sale are agreed
- your mortgage has been formally agreed
- you have the money to pay the deposit.
Signing the contract
Once the contracts are agreed, your solicitor (or licensed conveyancer) will ask you to sign it. Ask her/him to explain anything you don't understand. The seller signs separately and the solicitors exchange copies. Once copies of the contract are exchanged, the deal is legally binding.
Paying the deposit
Most buyers have to pay a deposit of around ten per cent of the agreed price when contracts are exchanged. It is sometimes possible to pay a smaller deposit but only if this has been negotiated in advance. When contracts have been signed and exchanged, your solicitor will give the deposit to the seller's solicitor. S/he keeps the deposit until the completion date, when the deposit will be paid to the seller, along with the rest of the purchase price.
If you are selling a previous home, it may be possible to put the ten per cent deposit you get from the person who is buying it towards the deposit on your new home. If not, you will need to have enough savings to cover it because the deposit has to be paid before your mortgage comes though.
If you don't have enough savings, you may be able to arrange a separate short-term loan (a bridging loan) with a bank. 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.
Buildings insurance
You will probably become legally responsible for buildings insurance from the date when contracts are exchanged. In many cases, this can be arranged through your solicitor. Ask her/him to check this, and make sure the property is insured properly from the date you become responsible. Once contracts are exchanged you have to buy, even if the property burns down.
If you buy a leasehold property, buildings insurance may be included in the service charges you pay. This is because the freeholder will probably be responsible for insuring the whole building and you will have to pay a share of the total insurance cost. If you are in this situation, you don't normally have to make the first payment until the sale is completed.
Final steps
When you exchange contracts, you should be given some idea of when the sale will be completed. This is usually between seven and 28 days after exchange of contracts, but could be as little as 24 hours. At some point between exchange of contracts and the completion date your solicitor will carry out any final checks and your lender will transfer the money for your mortgage to your solicitor. You may also need to:
- arrange for utilities (such as gas and electricity) to be switched into your name
- inform your bank and other important contacts (such as your contents insurer) of your new address and arrange for your post to be redirected
- make arrangements to move your belongings into your new home.
