A Concise Guide to Exchange and Completion for Buyers and Sellers of Property
Exchange and completion are two things you’ll need to know about if you are buying a house or selling a house. In fact, exchange and completion dates are two of the most important steps in the whole process. Here’s exactly what exchange and completion mean and what you need to know about them.
What is Exchange?
In property transactions, 'exchange' is short for exchange of contracts.
Exchange is the point in the buying and selling process at which the buyer’s and seller’s solicitors or conveyancers physically exchange the legal contract of sale for the property.
The most important thing to know about the exchange of contracts it that this is the point at which the property sale becomes final. Neither buyer nor seller can back out of the sale after this point without penalty. Exchange is very much the point of no return.
It’s also important to know that until exchange the sale is not final – it is only subject to contract. Either buyer or seller or both can decide not to proceed and the sale can fall through.
At the point of exchange, it is normal for the buyer to pay a non-refundable exchange deposit. This is traditionally 10% of the purchase price, although it can be less. The exchange deposit can be paid in cash or using expected funds from the sale of a property the buyer is selling at the same time.
The buyer becomes responsible for the property at the time of exchange. One implication of this is that they should arrange buildings insurance for it from exchange day.
In times past, it was usual for the buyer and seller and their solicitors to meet in person to physically sign and exchange the contracts. Today solicitors will usually ask each party to sign their individual copy of the contract of sale well before exchange day. On 'exchange day' they will then exchange contracts virtually by phone with the other party’s solicitors and then exchange the physical copies afterwards. It is usual practice to aim to exchange contracts around noon on exchange day.
The buyer does not actually take possession of the property at the exchange of contracts. This happens later.
What is Completion?
Completion is one of the final stages in the property buying and selling process. Completion or completion day usually occurs sometime after the exchange of contracts.
The legal definition of completion is that it is the point when all the terms of the contract of sale have been fulfilled satisfactorily and therefore the transaction is completed. In practice, completion day is usually also when the seller gives up the property and the buyer takes occupation of it.
Completion is when the buyer must pay the final balance for the property, less the deposit they have already paid. This can either be paid in cash or using mortgage funds. However, the buyer and/or the buyer’s mortgage lender will need to send this money to their solicitor in advance of completion day to allow this to happen.
On completion day the usual procedure is for the buyer’s solicitor or conveyancer to send the balance of the purchase price to the seller’s solicitor. Once the seller’s solicitor has confirmed receipt they will send the legal transfer of title deed and the title deeds for the property to the buyer’s solicitor and the transaction is then completed.
On completion day it is usual to aim to complete the sale between 1 pm and 2 pm although it can vary. This is usually specified in the contract and is known as the contractual completion time. It is usual for the seller to hand over the keys to the property, perhaps through the estate agent, once their solicitor confirms that the sale has completed.
Completion day is frequently, though does not have to be, also moving day. The seller must move out of the property (assuming they have been living there) and the buyer is able to move in (assuming they plan on living there) if they wish.
A Guide to Exchange and Completion
Here’s how 'exchange and completion' fit into the house selling and buying process:
- The buyer makes an offer, the seller accepts and the property is sold subject to contract.
- A memorandum of sale is drawn up which confirms all the details. The conveyancing process can then begin.
- The seller’s solicitor or conveyancer draws up a draft contract of sale and sends it to the buyer’s solicitor or conveyancer for them to check.
- The buyer obtains a formal mortgage offer (if buying with a mortgage) and processing of the mortgage begins.
- The buyer or their mortgage lender arranges a survey and a valuation.
- The seller provides further information about the property and the sale. This is usually done by completing forms TA6 (Property Information Form) and TA10 (Fittings & Contents Form).
- A number of essential checks are made by the solicitors or conveyancers. The official Land Registry registers will be checked to confirm the extent of the property and land, who owns the property, what legal restrictions or rights apply to it, and any existing mortgages or legal charges.
Extra checks will be needed if the property is a leasehold property.
Local authority searches will be made to find out about issues including access and rights of way, water and drainage, environmental and flooding risks, relevant planning applications and building regulations compliance.
- Any problems or queries which arise as a result of the above are dealt with and (hopefully) resolved by the parties.
- The buyer’s and seller’s solicitors confirm that everything is in order and that the sale and purchase can proceed.
- Contracts are exchanged on exchange day – as above.
- The sale is completed on completion day – as above.
- The sale is registered at HM Land Registry.
Important: The above procedure only applies in England and Wales under English law. Scotland has a different system due to the differences in Scottish law. The procedure will also be slightly different where a property is sold and bought at auction rather than by what is sometimes known as 'private treaty'.
What Happens Between Exchange and Completion?
Once contracts have been exchanged a number of things happen whilst waiting for completion to take place:
- Where a chain is involved – as is often the case with house purchases and sales – the various buyers’ and sellers’ solicitors or conveyancers should work together and coordinate everything to get the chain in place so that the completion date can be met.
- The seller should ensure the property is ready to hand over to the buyer. If, for example, they have agreed to do any repair or maintenance work as part of the sale.
- The buyer is able to check the property if they wish. That is, to ensure that it is in the condition that has been agreed.
- The necessary financial arrangements should be made. The buyer needs to ensure that the money is with their solicitor before the completion date. If the buyer is buying with a mortgage, arrangements should be made for the money to be with the buyer’s solicitor before the completion date. If the seller has a mortgage on the property a redemption statement should be obtained and arrangements made to redeem or repay the mortgage.
Each party’s solicitors will set up bank transfer details in preparation for completion day.
- The buyer’s solicitor will prepare a completion statement showing the purchase price, the deposit paid, balance to be paid and relevant costs, fees and Stamp Duty.
- The seller’s solicitor will prepare a completion statement showing the sale price, deposit received, balance to be paid, the mortgage to be repaid if appropriate, relevant costs and fees and the amount payable to the seller.
- The buyer and seller can book a removal date and start to do their packing where appropriate.
How Long does it Take?
There is no fixed period for how long it should take between exchange of contracts and completion of the sale. The buyer’s and seller’s solicitors will usually agree a date for completion either prior to or when exchanging contracts.
Between exchange and completion can be anything from a few days to a few months. It is usual to agree that completion will occur anything between 7-28 days from exchange of contracts however.
According to a study, by The Advisory the average time from exchange to completion in the UK is 13-14 days.
Whether you are a buyer or a seller you should discuss exchange and completion dates with your solicitor or conveyancer to try and find dates which suit all parties. If, for example, you want to exchange and complete on your sale as quickly as possible tell your solicitor this.
The period between exchange of contracts and completion can be affected by a number of factors. One key factor is if the buyer and/or seller are involved in a chain where, for example, each sale must be ready to go ahead before that seller can buy and vice versa.
Can you exchange contracts and complete on the same day? It is possible for exchange of contracts and completion to happen on the same day, although not that usual. If you are a seller looking for a fast sale you should ask your solicitor about this. Exchanging contracts and completing on the same day is more likely to be possible where there is no chain and/or where the buyer is a cash buyer.
How to exchange contracts and complete faster. There are a number of ways by which you can try to reduce the period between exchange and completion. Firstly, aim to use solicitors or conveyancers who are efficient and pro-active. Secondly, provide any information you are asked for and answer any queries as quickly as possible. Lastly, if you are a seller, selling your property to a cash buyer or fast house buying company can help make the period between agreeing on a sale, exchanging contracts and completion shorter.