What does exchange of contracts mean when buying or selling a house ?

If you are buying or selling a property, you will probably hear your conveyancer talk about “exchange of contracts” or simply “exchange”.

Exchange is one of the most important stages of the conveyancing process. It is the point at which the buyer and seller become legally committed to the transaction.

But what actually happens when contracts are exchanged? Why can’t your conveyancer exchange as soon as you have signed the contract? And what happens if somebody changes their mind afterwards?

Here we explain what exchange of contracts means, what needs to happen before exchange and what buyers and sellers should expect afterwards.

What Is Exchange of Contracts?

Exchange of contracts is the stage of a property transaction when the agreement between the buyer and seller becomes legally binding.

Before exchange, an accepted offer on a property is generally not legally binding in England and Wales. Once contracts have been exchanged, however, both parties are legally committed to proceed with the transaction in accordance with the contract. (GOV.UK⁠)

This is why your conveyancer will carry out a number of checks before asking for your authority to exchange.

Exchange should not be confused with completion.

Exchange creates the legally binding agreement to buy and sell the property.

Completion is when the transaction completes, the purchase money is transferred and the buyer becomes entitled to the property and usually collects the keys. (GOV.UK⁠)

Does Signing the Contract Mean I Have Exchanged?

This is an important distinction.

Signing your contract does not necessarily mean that contracts have been exchanged.

Clients are often asked to sign their contract in advance so that their conveyancer has the signed document ready when everybody is in a position to proceed.

Your signed contract may therefore be sitting with your conveyancer while searches, enquiries, mortgage arrangements or matters elsewhere in the property chain are still being dealt with.

The legal commitment arises when contracts are actually exchanged, not simply because you have signed your copy. The Law Society’s exchange procedures specifically distinguish holding a signed contract from the point at which exchange takes effect. (Law Society⁠)

So, if your conveyancer tells you that they have received your signed contract, this does not automatically mean you have exchanged.

What Needs to Happen Before Exchange of Contracts?

Every property transaction is different, but before exchange your conveyancer will normally need to be satisfied that the legal work required for your particular transaction has been dealt with.

For a buyer, this can include reviewing the property’s legal title, considering searches, dealing with enquiries and ensuring appropriate mortgage arrangements are in place.

The buyer will also usually need to have funds available for any deposit required on exchange.

Government guidance advises buyers that they should be satisfied with matters including the searches, survey and contract and have their mortgage confirmed before exchange. (GOV.UK⁠)

Your conveyancer will then ask for your authority before committing you to the transaction.

What Is the Exchange Deposit?

A deposit is commonly payable when contracts are exchanged.

The amount required will depend upon the terms of the contract and the circumstances of the transaction.

It is important not to assume that the deposit required on exchange will necessarily be the same as the deposit you have discussed with your mortgage lender.

For example, when people talk about having a “10% deposit” or “20% deposit” for their mortgage, they are often talking about the difference between their mortgage borrowing and the purchase price.

The contract deposit is a separate conveyancing concept and is dealt with under the terms of the sale contract.

Your conveyancer will tell you how much money is required and when it needs to reach them.

When Is the Completion Date Agreed?

The completion date is normally agreed before contracts are exchanged and is inserted into the contract as part of the exchange process. The Law Society’s exchange procedures expressly provide for the solicitors to confirm the agreed completion date immediately before exchange. (Law Society⁠)

This means that once exchange has taken place, the completion date is no longer simply a preferred moving date.

It forms part of the legally binding contractual arrangements.

This is why it is sensible to avoid making irreversible moving arrangements based purely on a proposed completion date before your conveyancer confirms that exchange has actually taken place.

How Long Is There Between Exchange and Completion?

There is no single period that applies to every transaction.

Government guidance notes that completion is often around two to four weeks after exchange, although exchange and completion can also take place on the same day. (GOV.UK⁠)

In practice, the period depends on what the buyer and seller agree and the circumstances of the transaction.

A property chain can make agreeing a completion date more complicated because the proposed date usually needs to work for everybody involved.

What Happens if I Am in a Property Chain?

If you are buying and selling at the same time, your transaction may form part of a property chain.

This means your sale may depend upon your buyer’s transaction, while your purchase depends upon the seller above you being ready.

Even if your own conveyancing work is complete, exchange may therefore have to wait until the other transactions in the chain are also ready.

This can sometimes be frustrating for clients because it may appear that “nothing is happening” even though their individual transaction is ready.

The conveyancers involved have to coordinate the exchange process so that the connected transactions can become binding appropriately.

What Happens on the Day of Exchange?

You will not normally need to attend your conveyancer’s office for exchange.

The conveyancers acting for the parties deal with the exchange process once the necessary documents, funds and authorities are in place.

The precise procedure can vary, particularly where several transactions are involved in a chain.

Once exchange has successfully taken place, your conveyancer should confirm this to you.

At that point, the transaction has reached a very important milestone: the buyer and seller are contractually committed to completion.

Can I Pull Out Before Exchange of Contracts?

Generally, before exchange, either the buyer or seller can decide not to proceed.

This can happen even after considerable conveyancing work has taken place and even where the parties have previously agreed a proposed completion date.

Government guidance confirms that an offer is not legally binding in England and Wales until contracts are exchanged. (GOV.UK⁠)

This is one reason why conveyancers are careful about describing a transaction as “definite” before exchange has actually occurred.

Can I Pull Out After Exchange of Contracts?

The position changes significantly after exchange.

Once contracts have been exchanged, the agreement is legally binding.

If a buyer or seller fails to complete after exchange, there can be serious contractual and financial consequences.

For example, government guidance explains that a buyer who withdraws after exchange may lose their deposit and may have to compensate the seller for other losses. A seller who withdraws may also face financial consequences. (GOV.UK⁠)

The precise consequences will depend on the contract and circumstances, so anyone facing difficulty completing after exchange should speak to their conveyancer immediately.

What Is the Difference Between Exchange and Completion?

Clients understandably sometimes use the terms interchangeably, but they describe two different stages.

Exchange of contracts is when the buyer and seller enter into their legally binding agreement.

Completion is when the transaction itself completes. The completion monies are transferred, the seller moves out in accordance with the contract and the buyer can usually collect the keys. (GOV.UK⁠)

A simple way of thinking about it is:

Exchange = the legal commitment.

Completion = moving day and completion of the purchase.

Can Exchange and Completion Happen on the Same Day?

Yes. It is possible to exchange contracts and complete on the same day. Government home-buying guidance specifically recognises that exchange and completion can happen simultaneously. (GOV.UK⁠)

Whether this is suitable will depend on the circumstances of the transaction.

One practical difference is certainty.

Where there is a period between exchange and completion, the parties have a legally binding completion date and some time to make their final arrangements.

With a simultaneous exchange and completion, there is no equivalent period between becoming legally committed and completing the transaction.

Your conveyancer can explain the implications based on your particular circumstances.

When Should I Book Removals?

Many clients understandably want to arrange removals as early as possible, particularly when availability is limited.

However, until contracts have been exchanged, a proposed completion date can still change.

You should therefore speak to your conveyancer before making arrangements which could result in significant cancellation charges.

Once exchange has taken place and the contractual completion date has been confirmed, you have much greater certainty about your moving date.

Do I Need Buildings Insurance From Exchange?

If you are buying a property, you should discuss buildings insurance requirements with your conveyancer and mortgage lender before exchange.

Government guidance advises buyers to organise buildings insurance for exchange because the buyer may become responsible for the property under the contractual arrangements at that stage. (GOV.UK⁠)

The position can depend on the contract and the type of property being purchased, so your conveyancer should advise you about the requirements applicable to your transaction.

Why Won’t My Conveyancer Exchange Yet?

This is another common question.

You may have signed your paperwork, transferred your deposit and agreed a completion date, but that does not necessarily mean your conveyancer is immediately able to exchange.

There may still be outstanding legal enquiries, mortgage requirements, documents, search matters or issues elsewhere in the chain.

Your conveyancer also needs your authority to exchange and must ensure the transaction is ready before creating a legally binding commitment on your behalf.

A delay in exchange can be frustrating, particularly when a moving date is approaching, but exchange is the point at which the transaction becomes legally binding. It is therefore important that the necessary matters are dealt with beforehand.

What Happens After Exchange?

Once contracts have exchanged, attention turns towards completion.

Depending on whether you are buying or selling, your conveyancer will deal with the remaining legal and financial arrangements required for completion.

Buyers should also use this period to finalise practical arrangements such as removals and preparing for moving day.

On completion, the purchase money is transferred through the conveyancers. Once completion has taken place, the keys can normally be released to the buyer. (GOV.UK⁠)

For buyers, there will also be post-completion legal work for their conveyancer to undertake, including the relevant tax and Land Registry requirements.

Exchange of Contracts: The Key Point for Buyers and Sellers

If there is one thing to remember about exchange, it is this:

Before exchange, the transaction is generally not legally binding. After exchange, the buyer and seller are contractually committed to complete.

Signing a contract is not necessarily the same as exchanging it, and a proposed completion date is not the same as a contractual completion date.

Your conveyancer will let you know when the legal work is sufficiently progressed, explain anything you need to do and obtain your authority before exchange takes place.

Are You Buying or Selling a Property?

Whether you are a first-time buyer, moving home, selling a property or dealing with a more complicated transaction, understanding each stage of the conveyancing process can make moving home considerably less confusing.

Our conveyancing team can guide you through the process from initial instruction through to exchange of contracts, completion and registration of your new ownership.

Contact our conveyancing team to discuss your sale or purchase and find out how we can help make your move as straightforward as possible.

This article relates generally to residential conveyancing in England and Wales and is provided for information only. It does not constitute legal advice. The legal position and requirements will depend on the circumstances of each individual transaction.