When you’re buying or selling a property, the golden moment many people wait for is the exchange of contracts. Once contracts have been exchanged, there’s no going back. It’s legally binding on the seller to sell the property, while it’s binding on the buyer to actually buy it. For that reason, it’s often the point at which most people in the chain breathe a huge sigh of relief and begin to prepare for the big move itself.
However, exchanging contracts can sometimes not be quite as smooth as this. Sometimes, a change in circumstances can lead to a mortgage application being readjusted – which could spell disaster. If there’s a death or illness strikes, that can also cause trouble and could lead to delays and additional heartache. There are ways to mitigate against these potential disasters, of course – although there are also ways to mitigate these problems if they look like they are about to happen to you. This article will explore what an exchange of contracts can signify, and what can potentially go wrong.
What actually happens?
The buyer is not actually involved in the precise moment at which contracts are exchanged. Usually, the buyer is only involved in the work running up to the moment of exchange. Once the draft contracts have been filled out by each party’s solicitor, they are signed by the buyer and the deposit – if there is one – is transferred to the solicitor.
All of this is held securely and on file by the relevant solicitors until the moment of exchange. There may be some final checks which need to be carried out in between exchanging and completing – such as a bankruptcy search. In some cases, buyers and sellers might need to negotiate points such as a completion date. Once all of this is done, the process of exchange occurs. This usually requires that the solicitors call each other and read out the contracts over the phone. Usually, this is then followed up by a physical exchange of the contracts via post, with the signatures of each party on them.
What does it mean?
Anyone involved a property transaction can pull out of said transaction up until the moment at which contracts are exchanged. However, they are not allowed to do that once exchange has happened – or, at least, not without significant penalties. If you do pull out after exchange, you are liable to lose your entire deposit and potentially also be charged a whole range of fees to cover the expenses of the seller. If they are unable to move into their next property, for example, you may well find that you are hit with the costs of their temporary accommodation, food and more.
What happens next?
Once an exchange has happened, the main thing to do is celebrate! The worst part of it is over, and it is now time to shift focus towards moving in. It’s perhaps not quite time to set up new utility bill accounts and so on, as that will require you to actually be in the property, but you can start preparing for all sorts of other things, including setting up postal redirects for a certain date.
You’ll then need to think about completion. In the financial sense, completing is the point at which the mortgage company releases the funds and they are paid by the solicitor, wiping off the balance above and beyond what you paid as a deposit and hence “completing” the purchase. In a practical sense, this is the day on which you get the keys and can access the property – and move in, provided it has been sold with what is known as “vacant possession”.
What can go wrong?
In theory, nothing can go wrong once the contracts have been exchanged. The idea is that all issues will have been ironed out by solicitors and valuers in the run-up to the exchange, and that once the contracts are signed, sealed and exchanged, nothing is left to worry about. While in the vast majority of cases no problem arises in between exchange and completion, there are some cases in which this can happen.
Perhaps the worst-case scenario from a financial standpoint is that a mortgage offer will be rescinded once the deposit has been paid and the obligation on the buyer to buy has been put in place. This is unusual, but it does happen in some circumstances – and it’s important to know about these so that you can reduce the chances of it happening to you. It may happen because the financial circumstances of the buyer can change, for example, while it could also occur if some sort of fraud has been detected. For this reason, keeping an eye on your credit score during the exchange and completion process could well be wise.
In terms of families and relationships, sometimes completion can be scuppered post-exchange by the risk that someone will become unwell and lose their job – or, in some rare cases, even pass away. In this situation, both your conveyancer and the conveyancer of the person you are buying from will need to make sure they work hard to inform both you and the deceased person’s estate of their obligations under the contract.
When it comes to property purchases, exchanging contracts is a key part of the process. It’s the point at which most things, at least, become signed and sealed – although there’s still a risk here and there. By keeping an eye on your credit score, ensuring you don’t change your financial circumstances and staying in touch with your solicitor, you can be as sure as possible that your financial circumstances will mean you can complete on time and as planned.
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