Welcome to Part III of this series of Conveyancing articles examining what you really get for your Conveyancing Fees. There’s been a lot of talk about the damage agents’ referral fees are doing to the market, but don’t be misled – Conveyancing Solicitors do a lot of varied work to earn their fee. Yes, some of it is ‘just’ form-filling, but when an issue arises or something is about to go badly wrong, you’ll be glad you paid for a qualified Solicitor.
In Part II we looked at the pre-exchange phase. By now you will have agreed a contract with the other side, and should be ready to exchange and complete on the purchase.
Exchange of Contracts
Once your Solicitor has reported to you, and you have confirmed that they are happy to proceed, contracts can be exchanged. At this point your Conveyancing Solicitor will:
- Review your financial arrangements, and request payment of any deposit in readiness for exchange (See below for more information about deposits).
- Check that you have received a satisfactory mortgage offer, if required.
- Send you documents requiring signature, especially the contract, transfer and mortgage deeds.
Once you have confirmed you are ready to proceed, and the sellers are also ready, the Solicitors arrange to exchange contracts. The sellers will have signed one copy of the contract and you will have signed another, and these will be swapped over to effect exchange.
These are the steps that your Solicitor will now take:
- Check that he/she is holding the signed contract and any deposit required
- Check that any mortgage conditions have been satisfied, or will be satisfied on or before completion
- Advise sellers’ agents that everyone is ready to exchange
- Discuss and agree completion date with sellers’ Solicitors
- If a separate, third Solicitor is acting for the mortgage lender, check that they are ready to proceed, and check how much notice will be required to draw down funds
- Ask you to give authorisation to exchange – this is the point of no return as your Solicitor will now go ahead with the exchange
- Phone sellers’ Solicitors to agree exchange; note details of phone conversation.
- Contact you to confirm exchange and completion date
- Send buyers’ contract to the sellers’ Solicitors, together with payment of any deposit
- Update electronic records
Exchange is now carried out by means of a phone call between Solicitors, in accordance with a protocol published by the Law Society for telephone exchanges. Each Solicitor confirms that they are holding a copy of the contract signed by their client, that the price and completion date are agreed, and that any amendments to the draft contract are agreed by both. The Law Society protocol incorporates undertakings for each Solicitor to send his or her clients’ signed contract to the other, so that they are physically exchanged after the phone exchange, together with payment of any deposit which has been agreed.
As soon as the solicitors have agreed that contracts are exchanged, the contract becomes binding, so neither party can withdraw without financial penalties.
There is often some confusion about deposits, and what is payable when.
House buyers are expected to pay a deposit when contracts are exchanged, as a guarantee that they will subsequently complete the purchase; this is what Conveyancing Solicitors refer to as the deposit. However most people think of the deposit as being the amount that they will be finding themselves, in other words the difference between the total purchase price and their mortgage.
The deposit which is paid on exchange has traditionally been 10% of the purchase price, but where the buyers are borrowing more than 90% a lower proportion will usually be accepted. If you are selling a property at the same time, than it is usual practice for the deposit received from your buyer to be used as the deposit on your sale, so avoiding the need for you to have to pay anything.
Before your solicitor can agree an exchange of contracts he or she will have agreed the amount of this deposit, and will then ask you to pay this amount (unless you are also selling. ) As it has now become common practice for final completion to take place shortly after exchange of contracts, you may be asked to pay the whole amount that you are putting up, to avoid you having to make two payments.
Your Solicitor will need to be holding the deposit as ‘cleared funds’ in the firm’s bank account before exchange can be agreed, so if you are sending a cheque that will need to be cleared first. As clearance takes effectively a week, it is always preferable to send any deposit by electronic transfer.
The deposit will normally be held by the sellers’ Solicitors as ‘stakeholders. ’ This means that they cannot pass it on to the seller until the sale has been completed. Of course if you fail to complete the purchase then the seller can rescind the contract and take the deposit.
We have almost reached the crucial, most exciting moment for homebuyers, Part IV – Exchange to Completion! Ready to continue?