Once you or your solicitors have answered any questions raised by the buyers’ solicitors, they should do a report to their clients on the property and send them the contract to sign.
The contract will either be in the form submitted by your solicitors or will have some agreed amendments discussed between the two firms. Property contracts are very standardised. All firms of solicitors use the same basic contract terms, so agreeing the final form of contract should not be a big deal.
The buyers’ solicitors will approve the contract, as it is, or with some amendments, which will be the subject of discussion and finally agreement between the two firms. Your solicitor will then send you one part of the contract to sign. (If you are away, arrangements can be made for the solicitor to sign on your behalf.)
Buyers have to pay a deposit at exchange of contracts. This is traditionally 10% of the purchase price. Nowadays, it is sometimes negotiated down to 5%, but you shouldn’t agree to that unless you really have to. The point of the deposit is that it is security for you that the buyers will honour the contract. You keep it if the buyers default on the contract and don’t complete the purchase.
A deposit can be held by your solicitors as ‘stakeholders’ or as ‘agents for the seller’. If the contract says they hold a deposit as agents for the seller, then they can simply pay it to you as an advance payment on the purchase price. This would be most unusual in a private sale, but it is often found in sales by developers of new homes – they expect to get deposits as early as possible to reduce their loans. In deals between private individuals, the deposit is usually specified to be held as ‘stakeholders’. This means that your solicitors must hold the money. They can only release the money to you after completion of the sale has taken place. There is one very useful exception to the rule that the money is held by the solicitors. If you are also buying a home in England or Wales, then the normal rules allow you to use the buyers’ deposit as part of your deposit on your own purchase.
Exchange of contracts
You often hear the contractual stage referred to as ‘exchange of contracts’ or just ‘exchange’. This is a reference to the way the contract is created.
A contract is prepared in two identical parts, one signed by the seller and the other by the buyer. (If you are abroad or can’t get to your solicitors to sign, your solicitors can usually sign for you.) Signing doesn’t commit you in any way.
At ‘exchange’ the two solicitors speak on the telephone. They agree the completion date (which you will have approved in advance) and this is written into the contract. Then they each agree to post their part of the contract to the other – that is the ‘exchange’ referred to. At that point in the conversation, you become legally bound to sell and the buyer is bound to buy. Now no one can back out.