Exchange vs Completion: Understanding the difference between them

February 2020
Exchange vs Completion

Quite often we misuse the terms exchange vs completion. Each term covers a different part of the property purchase purpose, so it’s worth being able to understand the difference.

 

The term exchange refers to the exchange of contracts, which is when the transaction becomes legally binding.

 

Completion is the date when the parties physically move and transfer legal ownership of the property.

 

So with the basics of exchange vs completion explained, let’s explore each in more detail and how they relate to buying or selling a property.

 

 

Exchange of Contracts

In any property transaction, until contracts have been exchanged, the parties aren’t not legally bound to follow through with the purchase. It’s simply an agreement in principle or a handshake.

 

Before contracts can be exchanged, each parties’ lawyer has to complete reams of paperwork. This includes completing local authority searches, verifying property ownership and ensuring the necessary funding is arranged.

 

As any part can withdraw at any point up to exchange, it’s important to build positive relationships with the buyer/seller, estate agent and your conveyancer. By forming good working relationships, you can ensure the process continues to move forward without meaningful delays.

 

Another benefit to building good relationships is reducing the risk of Gazumping or Gazundering or the deal failing at the last moment.

 

 

Exchanging when selling

Agreeing to sell your property to a buyer is the first step. Next, you need to instruct a solicitor who will complete the paperwork.

 

With a conveyancer selected, you’ll need to supply proof of your identity, property ownership as well as the price you agreed to sell for and the estate agent’s details.

 

If you have a mortgage, your solicitor will want to know who your lender is and your mortgage account number. Using this information, they’ll request an up to date Redemption Statement.

 

Should there be a shortfall between the price your selling for and the remaining mortgage, your conveyancer will ask you for details of how you intend to plug this gap.

 

As your solicitor needs to verify the ownership, using the property’s full address they will search Land Registry to determine if the property is Registered or Unregistered. You’ll need to supply the Title Deeds if your property is not registered. Should your property be registered then your solicitor will be able to obtain a copy on your behalf.

 

With the title documentation and other paperwork collected, you solicitor will draft the contracts and issue these to the buyer’s Lawyer. Next, your buyer’s solicitor will inform yours that they are in a position to proceed to exchange of contracts.

 

 

 

 

Exchanging when buying

After falling in love with a property and with your offered accepted, you’ll need to ensure you have the funds to complete (either in cash or a mortgage), and then instruct a surveyor and hire a conveyancing solicitor.

 

Your conveyancer should supply you with a breakdown of fees and disbursements including when payments should be made. They’ll also ask for the basic details such as who the estate agent is, the property’s address and proof of funds.

 

Next, your solicitor will contact the seller’s conveyancer to get the process underway. At the same time, they will start to complete the paperwork involved the legal transfer including local authority searches.

 

The next step for the seller’s lawyer to draw up the contracts and send them over to your solicitor. With the contracts passed to your solicitor, some dialogue will take place between both parties’ solicitors to answer any questions.

 

When your solicitor is happy with the contracts and the search results, they’ll provide a comprehensive report on the extent of the property you are buying. You’ll also be notified you that you’re able to proceed to sign the contracts.

 

Once you’ve received your mortgage offer, your conveyancer will request the deposit funds from you. They’ll also confirm that you are in a position to exchange contracts.

 

Before you exchange, you and the seller are required to agree on a completion date, when you actually own property. With this date agreed, both sets of solicitors will carry out their final checks and exchange contracts.

 

Straight after contracts are exchanged, your lawyer will transfer your deposit to the seller’s solicitor. At this point, the contract becomes legally binding on both the seller and the buyer.

 

 

Completion date

Having signed contracts and agreed on a completion day, there is still paperwork to complete. If the seller has a mortgage, then their solicitor will request a Redemption Statement calculated to the day of completion.

 

Also, they’ll ensure all invoices that are due at completion, such as the estate agent’s fees are accounted for.

 

A few days before the completion date, the seller’s conveyancer will send a Completion Statement. This details the financials of the transaction including funds received, monies paid. It will also state if there is a shortfall or if the seller is due any money after completion.

 

If you’re buying, in the lead up to completion, your solicitor will ensure that you’ve satisfied all mortgage conditions and will request funds from the lender. Typically, mortgage funds are paid at least a working day before completion. This avoids any unnecessary delays on moving day.

 

Much like the seller’s lawyer, the buyer’s solicitor will draw up a Completion Statement which details all payments made and monies received. Should you owe any monies, they will request them to ensure funds are cleared before the completion date.

 

 

 

 

On Completion Day

With both solicitors having completed their final checks, the buyer’s solicitor will transfer the balance of the purchase to the seller’s conveyancer.

 

When the seller’s solicitor receives funds they will confirm completion with the buyer’s lawyer. Next, the estate agent (or whoever is acting as the key holder), will release the keys. The seller’s solicitor will pay any secured charges and the estate agent’s fee.

 

The buyer will be notified that completion has taken place and they can then take possession and move into the property.

 

 

Exchange vs Completion

You should have a clearer idea between exchange vs completion and how each term relates to buying or selling a property.