The exchange of contracts is the point in a property transaction where the buyer and seller become legally bound to the sale. This happens when both parties have signed and exchanged identical copies of the contract of sale, which sets out the terms of the transaction.
At the point of exchange of contracts, the buyer will typically pay a deposit (usually 5-10% of the purchase price) to the seller's solicitor or conveyancer. This deposit is intended to demonstrate the buyer's commitment to the sale and to compensate the seller in the event that the buyer fails to complete the transaction.
Once contracts have been exchanged, both the buyer and the seller are legally obligated to complete the transaction on the agreed completion date. This is the date when ownership of the property is transferred from the seller to the buyer and the remaining balance of the purchase price is paid.
On the completion date, the buyer's solicitor or conveyancer will transfer the balance of the purchase price to the seller's solicitor or conveyancer. Once the funds have been received, the seller's solicitor or conveyancer will confirm that the completion has taken place and will authorise the release of the keys to the property to the buyer.
After completion, the buyer's solicitor or conveyancer will register the change of ownership with the Land Registry, and the seller's solicitor or conveyancer will use the proceeds of the sale to pay off any outstanding mortgage or other charges on the property.
In summary, the exchange of contracts is the point at which the buyer and seller become legally bound to the sale, and completion is the point at which ownership of the property is transferred from the seller to the buyer and the remaining balance of the purchase price is paid.
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