If you’re a first-time buyer or even a seasoned homeowner, the terminology surrounding property transactions can sometimes feel like navigating a maze. Two key milestones in the process are the exchange of contracts and completion. While they both signify significant progress in your journey to owning a property, they serve distinct purposes and mark different stages in the transaction. Let’s delve into the differences between these crucial steps.

Exchange of Contracts: The exchange of contracts is a pivotal moment in the property buying process, representing a legally binding agreement between the buyer and seller. Here’s what typically happens during this stage:

1. Signing the Contract: After thorough negotiations and legal reviews, both the buyer and seller sign identical copies of the contract of sale. This document outlines the terms and conditions of the property purchase, including the agreed-upon sale price, property boundaries, fixtures and fittings included, and any special conditions.
2. Deposit Payment: Along with signing the contract, the buyer is usually required to pay a deposit, typically around 5-10% of the purchase price. This deposit demonstrates the buyer’s commitment to the purchase and is held in a secure account until completion.
3. Exchange: Once both parties have signed the contracts and the deposit has been paid, they are exchanged. This can be done either in person or via the respective solicitors or conveyancers. At this point, the transaction becomes legally binding, and neither party can back out without facing severe financial consequences.
4. Settlement Date: The exchange of contracts also establishes a mutually agreed-upon settlement date, usually a few weeks after the exchange. This allows time for the remaining funds to be transferred, final checks to be completed, and preparations for completion to be made.

Completion: Completion is the culmination of the property transaction, where ownership of the property officially transfers from the seller to the buyer. Here’s what typically occurs during this stage:

1. Finalising Funds: In the days leading up to completion, the buyer’s solicitor or conveyancer will liaise with the buyer’s mortgage lender (if applicable) to ensure that all funds are in place for the purchase.
2. Pre-Completion Checks: Before completion, the buyer’s solicitor or conveyancer will conduct final searches and checks to ensure that there are no outstanding issues that could affect the property’s title or ownership.
3. Transfer of Funds: On the agreed-upon completion date, the buyer’s solicitor or conveyancer transfers the balance of the purchase price to the seller’s solicitor or conveyancer. Once the funds have been received and verified, the seller’s solicitor or conveyancer confirms that the property can be handed over to the buyer.
4. Handover of Keys: With the completion formalities completed and the funds transferred, the seller hands over the keys to the property to the buyer. At this point, the buyer officially takes possession of their new home and can begin moving in or making any desired alterations.

Key Differences:

• Legally Binding: The exchange of contracts establishes a legally binding agreement between the buyer and seller, whereas completion is the actual transfer of ownership.
• Deposit Payment: A deposit is typically paid at the exchange of contracts to secure the transaction, while the remaining balance of the purchase price is paid at completion.
• Risk of Withdrawal: Once contracts are exchanged, both parties are legally committed to the transaction, whereas completion marks the point at which ownership is transferred, and the property transaction is finalised.

In summary, while the exchange of contracts and completion are both significant milestones in the property buying process, they serve distinct purposes and signify different stages in the transaction. Understanding these differences is crucial for navigating the complexities of property transactions and ensuring a smooth and successful purchase. Whether you’re a first-time buyer or an experienced homeowner, having a clear grasp of these key stages will empower you to make informed decisions and confidently navigate the journey to homeownership.

Naha Ahmed – Trainee Solicitor