Welcome back to our ‘exposé’ series uncovering where the fees and disbursements paid to your Conveyancing Solicitor actually go.
Ever asked “What am I getting for my money?”? – These articles are the answer.
So far, we’ve only taken a look at the initial stages of a property transaction; now, it gets serious. Once your Conveyancing Solicitor has reported to you, and you have confirmed that you are happy to proceed, contracts can be exchanged. This is the point when the completion date will be finally agreed, so you can make your removal arrangements.
At this point your Solicitor will:
- Review your financial arrangements, and request payment of any deposit in readiness for exchange.
- Check that you have received a satisfactory mortgage offer, if required.
- Send you documents requiring signatures, especially the contract, transfer and mortgage deeds.
When a completion date has been agreed between you and the sellers, and both parties have confirmed that they are ready to proceed, 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 then be swapped, or ‘exchanged’.
Steps in Exchanging contracts:
- Check the signed contract and any deposit required are being held
- Confirm that any mortgage conditions can be satisfied
- Advise sellers’ agents that ready to exchange
- Discuss and agree completion date with sellers’ Solicitors
- If a separate Conveyancing 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!
- 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
Crunch Time – The Exchange
Exchange is now carried out by means of a phone call between the Conveyancing Solicitors, in accordance with a protocol established by the Law Society for telephone exchanges. The Solicitors confirm that they are each holding a signed contract, 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 their 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. You can no longer simply ‘walk away’ from the deal.
There is often some confusion about deposits, and what is payable when.
It is the usual practice for homebuyers to pay a deposit when contracts are exchanged, as a guarantee that the buyer will subsequently complete the purchase, and 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.
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.
The deposit which is paid on exchange has traditionally been 10% of the purchase price, but where the purchasers are borrowing more than 90%, a lower proportion will usually be accepted. 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. As it has now become common practice for final completion to take place within a few days of exchange of contracts, it is quite likely that you will be asked to pay the whole amount that you are putting up, to avoid you having to make two payments.
Need to complete ASAP?
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.
On exchange of contracts the deposit will normally be held by the sellers’ Solicitors as ‘stakeholders’ which means that they cannot pass it on to their client until the sale has been completed. Of course, if the buyer fails to complete then the seller can rescind (or cancel) the contract and take the deposit.
In the next article of this series, I’ll investigate the Completion phase itself in more detail, detailing precisely what your Conveyancing Solicitor will be doing to make this potentially tense and difficult time as smooth and stress free as possible.
Find out how in Part IV of Conveyancing Explained.