Exchange of Contracts

I mentioned in a previous blog that exchange of contracts is the point in a conveyancing transaction where it becomes legally binding. But what exactly does that mean?

I will go into more detail on the process up to exchange of contracts in the future, but what exactly is this magical point of the transaction that everyone wants to reach?

Exchange of contracts means it is legally binding. Up until that point it isn’t. That means simply that until that moment anyone can withdraw for any reason without penalty and without being in breach of contract. This is one of the issues with conveyancing in England and Wales that they government are constantly trying to improve.

So why might people withdraw? There are so many reasons. When you agree to buy a house or sell your own, there are many external factors that might mean you can’t go ahead even if you want to.

You might want to buy the house, but haven’t sold your own, or someone else in the chain may not be ready to go (chain incomplete). You may not be able to get the mortgage you want and afford the price you offered-and a post on mortgages will go into more detail on that.

Sometimes legal issues come up in the conveyancing process that lead people to change their mind, I once had someone withdraw because the property was at high risk of flooding, and I have had various issues relating to defective leases and problems with the title deeds. There are always things that can and do go wrong.

But there is another side, those that withdraw right at the last minute to try and hold the other party to ransom. To either reduce or increase the price. This is known as Gazumping or Gazundering depending if you are the Buyer or Seller.

Let’s imagine you are at an advanced stage in the transaction buying and selling. You’ve spent money on a survey, valuation, mortgage application, searches and have organised a date to move. Everything seems to be done but you haven’t exchanged. Then your Seller pulls out. They put the property back on the market and put the price up. They insist on an extra £10,000 or more to continue selling to you. What do you do?

Or your buyer withdraws and says they can no longer afford to buy for that price and put in a lower revised offer. Often blaming market conditions and the delay in the conveyancing process.

These situations can cause entire chains to collapse with no repercussions for the one causing the problem. But sadly some people actually do pay. Because the alternative of losing money time and effort already paid/made is worth it.

Luckily once the exchange of contracts has taken place this can’t happen. It doesn’t mean nothing can go wrong at this point however-just that there are legal implications if they do.

More on what can go wrong after exchange in another blog post.

Thanks for reading.