You are ready for exchange of contracts when you have your mortgage offer, your solicitors are happy with all the paperwork and searches and have approved the contract and sent it to you to sign.
If there is a hurry or you are abroad, your solicitors may be prepared to sign it for you if you give them written authority. The contract is the most important document in the transaction. Once contracts have been exchanged, no one can back out.
You often hear the contractual stage referred to as ‘exchange of contracts’ or just ‘exchange’. This is a reference to the way property contracts are brought into force. A contract can be on one bit of paper, signed by all the contracting parties. But in property transactions, the contract is in two identical parts, one signed by the sellers and the other by the buyers.
The buyers’ solicitors and the sellers’ solicitors agree the wording. The sellers’ solicitors then get their clients to sign one part, and your solicitors get you to sign the other part. Signing doesn’t commit you in any way.
When exchange of contracts takes place, your solicitors have to pay the deposit to the sellers’ solicitors. Your solicitors must have the money in cleared funds in their ‘clients account’ in advance. (Solicitors must maintain a bank account for their clients’ money, separate from the firm’s own money, and it is called a ‘clients account’.) You can usually send the money by bank transfer a day before and be sure that it will be there on time.
If you need to provide a cheque, remember that it can take five days or more to clear a cheque and your solicitors will have to wait for clearance to be confirmed by their bank before they can exchange contracts for you. You can’t pay cash. Solicitors generally will not accept large amounts of cash because of the anti-money laundering rules.
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 two parts of the contract. Then they each agree to post their part to the other solicitor.
That is the ‘exchange’ of contracts, and that agreement to exchange, or post to each other, is what turns the two pieces of paper into a binding contract. At that point, you become contractually bound to buy and the sellers to sell. Now no one can back out.