The main difference between exchange and completion is that ‘exchange’ is an exchange of contracts, which makes the matter legally binding between the parties, whereas ‘completion’ is the date the parties physically move and transfer legal ownership of the property.
Exchange of Contracts
If you are selling or buying a property, the transaction is not legally binding on any party until contracts have been exchanged. The Lawyers instructed on behalf of the seller and the buyer will be required to undertake certain work before the exchange of contracts can take place. Any party can withdraw from the transaction prior to exchange.
It’s important to build a good rapport with the buyer/seller, your Conveyancing Lawyer and also the estate agents. This will ensure all parties are kept up to date of progress, and can sometimes help to avoid parties withdrawing; for details see Gazumping or Gazundering.
The Property Sales Process
When you have sold your property, you need to instruct a Conveyancing Lawyer to prepare the contract documentation. Your Lawyer will send you their terms and conditions and request further information from you at the outset of the case, such as your identification, agreed price, estate agent details, and agreed timescales.
Your Conveyancer will also ask if you have a mortgage on the property, and if so will request the lender details and mortgage account number. This will enable them to obtain an up to date Redemption Statement. If there is a shortfall between the sale proceeds and the mortgage redemption, your Lawyer will advise the seller as soon as possible and not exchange contracts until further instructions have been provided as to how the shortfall is to be paid.
The seller’s Lawyer will also ask for the full address of the property you are selling to determine if the property is Registered or Unregistered with the Land Registry. If the property is not registered they will ask for the whereabouts of the Title Deeds. If the property is registered you do not need to do anything as your Lawyer will obtain an up to date copy of the title documentation on your behalf.
Once your Lawyer has the title documentation and the replies to any enquiries they have sent you, they will draft the contracts and issue these to the buyer’s Lawyer. Your Lawyer will then wait to hear from the buyer’s Lawyer that they are in a position to proceed to exchange of contracts.
The Property Buying Process
When you have found a property to buy and your offer has been accepted, you should then instruct a Conveyancing Lawyer to act on your behalf. Your Lawyer will provide you with a breakdown of fees and disbursements. If you intend to buy with a mortgage you should also instruct your lender and surveyor as soon as possible.
You should provide your chosen Lawyer with the details of the estate agent, your surveyor details and also your new mortgage details. Your Lawyer will contact the seller’s Lawyer and request a plan to undertake property searches. They will also request the contract documentation.
Upon receipt of the contracts from the seller’s Lawyer, your Conveyancer will raise any enquiries and notify you when the contracts have been received. When your Lawyer is happy with the search results and contractual position they will contact you and provide a comprehensive report on the extent of the property you are buying. Once your mortgage offer has been received and you have replied to any enquiries, your Lawyer will request the deposit funds from you and confirm they are in a position to exchange contracts.
Before exchange can take place, you and the seller will be required to agree a completion date which is when you will physically own the property. Once you have agreed the date, the Lawyers will do their final checks and exchange contracts. It is only when contracts are exchanged that your Lawyer will send the deposit to the seller’s Lawyer, after which the contract becomes legally binding on both the seller and the buyer.
The Completion Date
If there is a mortgage on the property to be sold, the seller’s Lawyer will request a Redemption Statement calculated to the day of completion. They will also request any further invoices to be paid on completion, such as the estate agent’s fee. Prior to completion the seller’s Lawyer will send a Completion Statement which will provide a complete breakdown of the funds received, paid out, and highlight if there is a shortfall or funds due to the seller after completion.
When you are buying a property, the buyer’s Lawyer will ensure prior to exchange that all mortgage conditions have been satisfied and request funds from the lender. It’s usual to request the mortgage funds the working day before completion to avoid any unnecessary delays on the day you move.
The buyer’s Lawyer will draft a Completion Statement setting out all payments made and all monies received. If there is a balance due they will request this money to ensure funds are cleared prior to the completion date. They will also undertake final checks and searches before being in a position to proceed.
What Happens on Completion Day?
Both Lawyers acting for the seller and the buyer will complete their final checks. The buyer’s Lawyer will then place the balance of purchase money into the banking system and transfer to the seller’s Lawyer.
Once the seller’s Lawyer receives funds they will confirm completion with the buyer’s Lawyer, release the keys which are usually held at the estate agent, and pay any secured charges together with the estate agent fee (if agreed). The buyer will then be notified completion has taken place and they can then take possession and move into the property.