Buying or selling a home is often one of the most significant financial transactions in a person’s life. It’s therefore essential to understand the process and the legal responsibilities for both sides, before and after the exchange of contracts.
Before exchanging contracts: The “sale agreed” stage
The term “sale agreed” is commonly used in property transactions, but it’s important to understand that this stage does not carry any legal weight. At this point, both the buyer and the seller may feel that the sale is progressing well, and a booking deposit may have been paid to the estate agent. However, the agreement remains “subject to contract”, meaning that neither party is legally bound to complete the transaction.
Until the formal contracts are signed and exchanged by solicitors for both parties, either party can walk away from the deal without legal penalty. This flexibility, while often frustrating, exists to allow time to conduct due diligence such as surveys, title investigations, and securing mortgage approval.
It’s also worth noting that during this pre-contract phase, the seller is legally entitled to accept a higher offer from another buyer, a practice known as gazumping. While not illegal, gazumping can be disheartening for prospective buyers and is one reason why many urge reform of the system.
For both buyers and sellers, it’s crucial to understand that no legal commitment exists until contracts are exchanged. Engaging a conveyancing solicitor early in the process can help ensure that everything is in order, allowing the transaction to move smoothly towards the binding contract stage.
After exchanging contracts: The legally binding stage
Once the contracts have been signed by both parties and formally exchanged by their solicitors, the sale becomes legally binding. This is the point of no return. Unlike the “sale agreed” stage, neither the buyer nor the seller can withdraw from the transaction without potentially serious legal and financial consequences.
For the buyer, pulling out after exchange almost certainly means losing their contract deposit, often 10% of the purchase price and sometimes more. In some cases, the seller may also pursue the buyer for additional damages, particularly if they incur losses as a result of the failed sale.
For the seller, backing out can be even more complex. The buyer may seek a court order for specific performance, compelling the seller to complete the sale. Alternatively, the buyer could sue for damages if the sale collapses due to the seller’s default.
While it is rare, a sale may still fall through after exchange in exceptional circumstances. For example, if there is a serious defect in the title that cannot be resolved, or if a mortgage lender unexpectedly refuses to release funds. However, such issues are usually identified during the conveyancing process and addressed before contracts are exchanged.
At this stage, your solicitor’s role is critical. They ensure all conditions of the contract are satisfied and that the transaction proceeds to completion without delay. Once the completion date arrives, the balance of the purchase price is paid, and legal ownership transfers to the buyer.
Worried about the legal side of buying or selling property?
If you have concerns about any legal aspect of your property transaction, our experienced solicitors at McCarthy + Co Solicitors LLP are here to help. Just fill out our quick, confidential online form, and one of our friendly team members will be in touch shortly.
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