When it comes to buying a house, there are many legal documents and processes involved. One of the most important and significant steps in the home buying process in the UK is the exchange of contracts. This is the moment when the sale of the property becomes legally binding, and both the buyer and seller are committed to completing the transaction.
So, what exactly does exchange of contracts mean, and what does it entail? Let`s take a closer look.
What is Exchange of Contracts?
The exchange of contracts is the point in the buying process when the buyer and seller exchange signed copies of the contract. This is usually done through their respective conveyancers or solicitors. Once the contracts are exchanged, the sale becomes legally binding, and both parties are committed to completing the transaction on the agreed terms.
At this stage, the buyer is required to pay a deposit, usually 10% of the purchase price. This deposit is held by the seller`s solicitor until completion, at which point it is transferred to the seller.
What Happens After Exchange of Contracts?
After the exchange of contracts, there is a period between the exchange and completion known as the completion period. This period usually lasts around two weeks, although it can be longer or shorter depending on the circumstances.
During this period, both parties must make sure that they are ready to complete the transaction on the agreed completion date. The buyer`s conveyancer will carry out final searches and prepare for completion, while the seller`s conveyancer will prepare the transfer deed and deal with any outstanding mortgage.
On the day of completion, the buyer`s conveyancer will transfer the rest of the purchase price to the seller`s solicitor, and the keys to the property will be handed over to the buyer. The sale is now complete, and the buyer is officially the new owner of the property.
Can You Pull Out After Exchange of Contracts?
Once contracts have been exchanged, it is very difficult for either the buyer or the seller to pull out of the transaction without incurring significant financial penalties. If the buyer pulls out after exchange, they will lose their deposit, and the seller may also be entitled to claim damages.
However, there are some circumstances under which a buyer may be able to pull out without penalty. For example, if there is a serious issue with the property that was not disclosed prior to exchange, or if the buyer is unable to obtain the necessary finance to complete the purchase.
In most cases, it is advisable to seek legal advice before pulling out of a transaction after exchange of contracts.
In Conclusion
The exchange of contracts is a crucial step in the home buying process, marking the point at which the sale becomes legally binding. It is important to make sure that you are fully prepared for this stage and that you have all the necessary funds in place to complete the purchase.
If you are unsure about any aspect of the exchange of contracts or the home buying process in general, it is always a good idea to seek professional advice from a qualified conveyancer or solicitor.