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When you’re buying a house, nothing is set in stone until you exchange contracts. Yes, you might be ready to move before the exchange date and, yes, you might feel like all is settled and finalised. But until those contracts have been exchanged, nothing is confirmed.

The exchanging of contracts on a house is one of the final hurdles to overcome on your way to buying a property. While numerous things will need sorting out once the contracts have been signed and exchanged, you are now legally committed to the purchase of the house and the property is pretty much yours.

On the legal side of things, the contract exchange is a big thing. But, just as importantly, the emotional aspect of the contract exchange is also huge.

Buying a house is a long and drawn-out process, and sometimes it feels like a never-ending cycle of hassle and legal fees. It can be hard to keep your motivation up during the negotiations and administration process but, once you exchange contracts, it all becomes worth it – finally, you know you’re moving into your dream home.

How contracts are exchanged

So, what actually happens on the day of reckoning? Well, you’ll be glad to know that it’s all pretty straightforward. At this point in the buying process, the mortgage lender will have approved your mortgage, the solicitor will be happy with the results of any surveys and the seller will be willing to accept your offer and pass over the ownership. All that you, the buyer, need to do is go out and ask your solicitor to get the contracts exchanged.

Solicitors and conveyancers acting on the behalf of the buyer and the seller handle the exchange and completion stage. They will put down the terms of the property transaction in writing and make sure the price is agreed, as well as what’s included in that price, such as furniture items.

Once those terms are agreed, you can exchange contracts and the deal now becomes legally binding. The contract includes an agreed completion date, and the new owner of the property will then be added at the Land Registry.

Of course, this is also the moment that you give up all that money you have been saving for years. The exchange of contracts also involves the buyer putting down a deposit. This tends to be 10 per cent of the purchase price. For many people, this is the hardest part of the whole process and is often the moment that it all becomes ‘real.’ That money has had a lot of emotional investment and it can be quite hard letting it go, despite the fact that it is being used for what it was intended for.

House contracts exchanged

Before you Exchange Contracts: our Quick Checklist

While the exchange of the contracts may sound very exciting, indeed a cause for celebration, there is a lot that must be done before you get to the point where you can shake hands, high-five and crack open the bubbles.

1. Mortgage valuation and written offer

Once the terms have been agreed, you will need to make sure you’ve had your mortgage valuation and offer completed – only then can you proceed to exchange contracts.

When you’re buying a property, one of the biggest and most complex issues you have to navigate is getting a mortgage. Once you’ve applied for your mortgage, you will then be assessed and asked numerous questions about how you manage your finances.

The lender may ask for several supporting documents to back-up your claims. As it can take quite a while to get all this sorted, make sure you’re organised and don’t leave it until the last minute.  It’s also important that you keep your solicitor in the loop at this time.

If your application is accepted, the lender will carry out a valuation of the property and check whether it’s priced correctly and suitable for mortgage purposes.  Lenders have a standard valuation, which is the minimum check they require to progress your application (this is required by law).

A surveyor acting on behalf of the lender will inspect the property, highlighting any major defects or issues that could potentially affect the property’s value. The lender will also compare the property to similar ones in the area, taking into consideration the building’s age, condition and location. These results are used to generate a valuation report, which will form the basis of the mortgage offer.

Once your valuation has been completed, the lender will carry out a few final checks and then write to you and your solicitor with a mortgage offer. This offer will include a copy of your valuation and you can ask your solicitor to give you a run-down of the offer, if required.

2. Ensure relevant searches are complete

There are things about the property you may not know just from sounding it out with an estate agent. As part of conveyancing, your conveyancer will do a set of legal searches to ensure nothing is being hidden and that there are no underlying issues for you to be aware of.

These searches are a vital part of the buying process and ensure you’re not taking ownership of a property with serious issues and hazards. The conveyancer will take a look at planning permission in the area, check the ownership of the property, whether it’s liable to flooding. They may also conduct an environmental search to assess air purity and ground stability.

You may think that you know the area and the property well enough to not have these checks performed, but they are a legal part of the process and are in place to prevent you getting any nasty surprises down the line

You may also want to check the Energy Performance Certificate (EPC) of your new place to see if there are any underlying issues with the way that it functions. This will help you determine your likely costs while living there.

3. Agreeing the terms of the offer

The terms of your offer will need to have been agreed in principle with the seller, and they will have to be happy to pass over ownership of the property to your.

It goes without saying that you should have read, understood and agreed to everything that is in the text of the contract. Buying a house is one of the biggest investments that you are likely to make, so you need to be sure that you clearly understand what you are getting yourself into.

You may want to get the negotiations over and done with. However, if you’re unsure about anything, no matter how small, ask your solicitor to go over it with you before you sign.

4. Arranging Buildings Insurance

Common law provides that responsibility for a property passes to the buyer upon exchange of contracts, unless the contract provides otherwise. For this reason, you’ll want to have got buildings insurance lined up to take effect from the day you exchange contracts.

This is point is commonly neglected by buyers, who assume they only become responsible for damages upon completion, that is: from the point when they move in.

It’s unlikely that your new home will go up in flames during this interim. But the risk isn’t zero, and if it did you’d be the one footing the bill.

If you’re going to be leaving your property vacant for a period, bear in mind that there are certain perils that can quickly become catastrophic if left untreated – like burst pipes for example.

For this reason, regardless of what your moving-in plans are, you need to get your new home insured and protected – from exchange day onward. Don’t wait until completion.

5. Setting your Completion Date

The completion date can be at any time and on any date agreed by the two parties, but it tends to be around four weeks after you exchange contracts.

It’s becoming increasingly common for solicitors to agree on the exchange and completion being done on the same day, but this comes with its perils. If the sale falls through at the last minute, you could end up with removal lorries parked up outside of a home that you do not own and with a big bill for you pay without a legal right to recover.

Setting a completion date a few weeks after you exchange contracts is a safe way to do things, provided of course you have relevant insurance in place.

This delay means that, if either party deviates from their side of the deal, they could be liable to legal action being taken against them from the other party. For example, the injured party can reclaim any losses incurred from a sale collapsing.  Therefore, despite the temptation to get the keys and move on in, it’s sensible to agree a completion date within a realistic time-frame.

What about Gazumping?

You may have got everything in place: mortgages, searches, insurance. You may have penciled a completion date into your diary. However, be warned:

Until you exchange contracts, nothing stops the seller accepting another bid on the house or taking it off the market – so make sure you’re ready to move as quickly as possible.

This last-minute acceptance of higher offers is known as “gazumping”, an infuriating though totally legal practice that could happen to you. In some cases, the higher offers are fictitious (“ghost gazumping”) – a ploy by sellers to get you to increase your offer.

While there’s not much you can do if you are gazumped, there are some things you can do to protect yourself:

  • Ask the seller to take the property off the market once your offer has been accepted
  • Offer to put down a £1,000 ‘holding deposit’ to show that you are serious.
  • It’s also important to have all of the necessary documents and information ready, so that you can move as quickly as possible from getting your offer accepted to exchange of contracts.

Click here to learn more about gazumping and what you can do to gazump-proof your move.

On Completion Day

The last part of your long journey into home ownership is the completion day itself. Your solicitor will have finalised the date with the seller’s party, and it is finally time to exchange the money and pick up the keys for your new place.

Your solicitor will issue a Certificate of Title to your lender and they will release the funds to your solicitor, who will then transfer the money to the seller’s solicitor. Once they have received the money, the purchase is complete and you can finally move in!

By the time you exchange contracts, it may seem like the end of the race already. However, it’s more correct to see exchanging contracts as one final hurdle before your hard-earned domestic bliss.

So, once again: make sure you are thoroughly prepared and clearly understand the terms of the agreement. It will have taken a long time to get here, so do not rush into something you are unsure about, and always keep your wits about you. Other than that, happy moving!

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