What is the difference between exchange and completion?
9 April 2018 by Gayle Fordham
It is a common misconception that a date is set for Exchange of Contracts, but, this is not the case. Exchange will happen when all paperwork is in place, and all parties in the transaction have signed their Contracts; as well as having agreed a date for completion. The exception to this is generally in the case of new build home purchases. It is usual that the date will not be fixed for new build homes as they may not be built.
On the date of exchange, each Lawyer will speak to their client, to seek their authority to exchange Contracts. The Lawyers will then exchange on their clients behalf. This is generally a sequence of telephone calls between the Lawyers in the chain. Once exchange is confirmed the parties are legally bound to sell and buy the property. If the transaction does not take place following exchange there will be legal penalties for the party at fault; these will depend on the Contract. Advice should be sought from the acting Lawyer on this.
If you are a buyer, you will need to pay a deposit to the sellers on exchange; this is normally 10% of the purchase price. If you are selling a property, your buyers deposit is normally used as the deposit on your purchase. In some cases extra funds may be required as a top-up, but this depends on the circumstances.
Delays to Exchange are commonly caused due to enquiries outstanding, missing signed Contracts, delay in deposit funds arriving, dates not being agreed; or even a Lawyer in the chain being unable to get authority from their clients.
Insurance and Services
Upon Exchange, the buyer is responsible for buildings insurance. The exception to this is in the case of new build, where commonly the developer will insure until completion. Contents insurance should be in force from Completion.
If you are taking out life insurance, then this should also be put into place from Exchange.
The seller should notify their service providers and Local Authority upon exchange to notify the companies of the Completion date. However, services should not be cancelled without prior reference to the buyer.
As mentioned above, completion dates are generally set upon exchange of Contracts. The completion date is the date you move house.
If purchasing, the Lawyer will arrange to obtain mortgage funds from your lender, and collect any funds needed from you in time for the completion date. On the agreed completion date, the funds will be sent to the sellers Lawyer’s account. Once they are in receipt of the monies they will confirm to the Lawyer and estate agents; advising the latter that they can release the keys to the buyer. Money transfers between Lawyers normally take a few hours. However, they are only guaranteed to go through on the day it is sent, so, can take longer. Once the funds leave the Lawyers account, it is difficult to place an exact arrival time at the other end. To avoid delay funds maybe requested to be in the Lawyers account the day prior to Completion.
If selling, you will need to sign a Transfer in readiness for completion and this will need to be with the Lawyer on the date of completion, at the latest. The seller will need to remove their belongings and any rubbish from the property, and should aim to have this done by 1pm.
Penalties and Delays
The seller can be subject to penalties from the buyer for expenses they may incur during completion. Penalties may occur for late completion, removal of items if there is a delay in moving out, rubbish left at the property, as well as items left that were not agreed in the sale.
Luckily, problems with completion are not very common. Completion can however be delayed due to mortgage lenders not sending the funds in time; or there may even be a delay in the banking system with funds between Lawyers.
Keys are generally left with the estate agents by the seller, for the buyer to collect once completion has taken place. Parties can sometimes make arrangements directly between themselves. If this is the case, the seller should not part with the keys until they have confirmation that the money is with their Lawyer.
To contact the FJG Conveyancing team; call 01206 704043 or email [email protected]