When buying a house, there can be a lot of specialist ‘jargon’ terms used by legal teams that may mystify you somewhat.
We are going to clear up two very common phrases that you will hear and that you should look forward to hearing: exchange and completion.
What is a completion date when buying a house?
A legal completion date is the last stage in the property buying process, and marks the date when you receive the keys to your new property and you can officially move in.
There are a number of events that need to take place behind the scenes for completion to happen smoothly. Fortunately, as a buyer, you can sit back and relax while your solicitors handle this for you.
The biggest thing that needs to happen on completion day is the exchange of funds. If you are buying a property using a mortgage, your solicitor will usually have access to the money provided by the lender in advance of the completion date so it is ready to pay to the sellers on time.
The money is usually transferred as early in the morning as possible as banks have a closing time of 3pm for payment transfers.
Your solicitor will have provided you with a completion statement that shows a breakdown of your funds and where they will go. If there is a shortfall after the application of the solicitors’ fees then they will have requested a payment from you to make this up.
After all due funds have been exchanged and receipt is confirmed by the seller, the property will be yours and you can arrange to pick up the keys. This either requires a trip into the estate agent’s office to pick up the keys, or you can arrange with the sellers to receive them directly yourself.
Because completion requires the transfer of money between banks and solicitors, it is not possible for a completion date to fall on a weekend or a bank holiday.
It is common for completion to take place on a Friday, that way buyers have the full weekend to get settled into their new property. However, it is also becoming common for completion to take place earlier in the week to avoid delays that may occur on a Friday as that is the busiest day for bank transfers.
What does exchange of contracts mean and how does it work?
The exchange of contracts, on the other hand, is the step in the property buying process where the sale is legally binding for both the seller and the buyer. This event occurs before the completion date, although it can happen on the same day as completion.
After both parties’ solicitors have settled on their contracts and have no more queries that need answering, you will have to agree to and sign your contract and then following this the exchange can take place.
Exchange mostly happens over the phone these days. Both solicitors will look over the contracts and recite them over a conversation to evidence that the contracts are in order.
For you, the exchange date is important because you will have to pay the exchange deposit. This is also the critical day when the transaction is contracted in and the completion date scheduled formally. Until the date of exchange, both the seller and the buyer are usually able to walk away from the transaction without any liability to the other party but once exchange has happened, both parties would be liable should they want to pull out or if they were late in completing.
The exchange deposit is usually 10% of the total property purchase price.
For buyers with a 5% deposit, you may have to make up the rest of the funds somehow which you will get back upon completion if the purchase proceeds or you will have to agree on a lower exchange deposit with the sellers.
How do solicitors exchange contracts in a chain?
Conveyancing at the exchange in a chain can prove to be a tricky process because of the variety of property prices moving up the chain and how this affects the 10% deposit amount.
If one link in a chain is relying on the equity from their property sale to fund their deposit, then they may have to arrange funds from somewhere else to pay the exchange deposit on their property purchase.
Fortunately, conveyancers can usually use move the exchange deposit up the chain from solicitor to solicitor, so buyers only need to provide a smaller cash amount to make up their complete exchange deposit if the value of the property being purchased is increasing.
Average time between exchange and completion
The time between exchange and completion is completely up to the discretion of the buyer and the seller. Commonly these days exchange and completion takes place on the same day although often it is preferable to have some form of certainty by exchanging contracts in advance. This allows both parties to get their arrangements prepared like removals and change of address notices.
There is legally nothing stopping exchange and completion happening on the same day but it is advised to avoid this if possible as it can be incredibly stressful for exchange and completion to occur on the same day, and it may not be realistic if you are needing to commit to removals and other such matters.
In terms of the specific time of day completion takes place, you will usually find that the lower you are in a chain the earlier you will receive your keys. This is because you are not relying on any other purchases to complete before your own.
What if there is no completion date in my contract?
It is impossible to exchange contracts without a completion date in the contract. You will have to agree a date before exchange can take place.
Can I pay a reduced deposit on exchange of contracts?
The exchange of contracts deposit has to be paid to protect the seller in case the property purchase falls through or the buyer pulls out.
A lower than 10% exchange deposit can be arranged, although it is up to the seller whether or not they accept this as they will have less security if the sale does not happen. Remember, a seller in a chain will also have to pay an exchange deposit to their own sellers, even if their property sale falls through.
Still got questions? Get in touch with our conveyancing solicitors to see how we can help.