What are the risks between exchange and completion?
You may be wondering what can go wrong between exchange of contracts and completion? You may think you’re home and dry with your house sale once you’ve exchanged contracts. But are you?
What can go wrong between exchange and completion includes:
- Mortgage company withdraw their mortgage offer.
- One party could have an accident.
- A dispute could arise over the property.
- Buyer pulls out of the sale.
- The house gets damaged by fire, flood or storm between exchange and completion.
- The conveyancing chain may break.
- You’re made redundant and lose your job.
What can go wrong between exchange and completion?
What happens between exchange and completion and what could possibly go wrong? In England and Wales the penultimate stage of a property sale is exchange of contracts. This is the point at which both the buyer and the seller are committed to the sale and purchase.
This is usually when 10% of the purchase price is paid by the buyer. At this point neither party can withdraw without having to pay damages to the other party.
The final stage of a property sale is completion.
Believe it or not, things can go wrong between exchange and completion. Many think that once contracts have been exchanged their home has sold. But things can and do go wrong after exchange of contracts.
Whilst the risk of these things happening is low, let’s take a look at each of these risks. Things that can go wrong between exchange and completion in more detail.
More Reading: Can you exchange contracts without a completion date?
1. The buyer’s lender withdraws their mortgage offer between exchange and completion
Whilst it doesn’t happen very often a mortgage offer given before exchange of contracts is withdrawn once contracts have been exchanged.
This creates major problems for a buyer if this happens. Also, depending on timing between exchange and completion when the mortgage lender decides to withdraw their offer, it’s still possible for a new mortgage to be arranged in time to complete.
However, if this happens closer to the completion date it’s less likely for a new mortgage offer to be obtained in time.
However, if the buyer doesn’t meet the completion date deadline, but they manage to secure a new mortgage after the original deadline, they’ll still be able to complete. But this may involve penalties and interest to pay for the buyer as the completion date is later than originally planned.
2. One of the parties could have an accident between exchange and completion
If something untoward happens to one of the parties between exchange and completion, this can have an impact on the completion date. For example, the death of one of the parties would create a problem.
The executor to the party who’s died cannot do anything until the estate is legally vested in the deceased’s executors and probate has been granted.
Another problem that can happen is the bankruptcy of one or other party to the contract. This is more likely to happen to the seller of the house. It might be the reason they are selling their house, which is due to financial difficulties.
If the house sale doesn’t happen in time before bankruptcy takes place, this will create a problem for the buyers.
If a problem of this nature happens to you between exchange and completion, you should speak with your solicitor and seek their professional advice.
3. Dispute can arise before the completion date which may prevent completion taking place
It’s possible that a problem that wasn’t highlighted before contracts were exchanged may come to light between exchange and completion. This could be the seller didn’t provide proper answers to inquiries raised about the house.
It’s possible that if the problem had been known before exchange of contracts, exchange may never have happened. Alternatively the purchase price may have been further negotiated.
This situation could get messy. The best advice if this happens is to speak with your solicitor and seek their professional advice.
4. The buyer pulls out and decides not to complete the sale
On very rare occasions buyers pull out of the sale. Buyers can and do change their mind.
This is more likely with overseas-based buyers as they are less likely to understand the implications of English and Welsh law. Or they will rely on the fact that it will be harder to be legally pursued as they live outside of the UK.
Once more the situation could get messy. The best advice if this has happened to you is to speak with your solicitor and seek their professional advice.
5. The house gets damaged by fire, flood or storm between exchange and completion
If the house you’re buying burns down, is flooded or damaged by a storm between exchange and completion, you are still legally obliged to still go ahead complete the sale.
Who will be responsible for the damage caused by the fire will be down to what’s included in the Sale Contract.
Seller are contracted to continue looking after the property until they move out on completion day. They are obliged to repair any damage they cause to the property themselves. Which means sellers are obliged to keep the property in the same condition it was when contracts were exchanged.
If the property is damaged by a fire, a flood or a storm between exchange and completion, the repairs are usually the responsibility of the buyer. But who is responsible will be included to the contract of sale.
This isn’t particularly helpful for the buyer, particularly if their new home is no longer suitable to move into.
On the assumption the buyer is also selling their existing home too, they will have to move out of this property if exchange has already taken place on that property too.
This is why it’s extremely important to insure the new property on the day of exchange.
6. Conveyancing chain breaks further up the chain-sale which affects the completion after exchange has taken place
If the sales chain involves a number of properties, it’s possible a problem can happen further up the chain. Any problems further up the conveyancing chain will have a knock-on effect further down the chain troo.
For example, the buyer at the top of the chain has their mortgage offer revoked by the mortgage lender. This won’t only impact the seller of the house they are buying, but it will have a knock-on affect right along the sales chain too.
This is possibly one of the worst case scenarios of what can go wrong between exchange and completion.
Everyone in the chain will find themselves in breach of contract if they cannot complete as a result of a failure further up the chain.
If this is what’s happened to you we may be able to help. However, you’ll need to move fast to avoid penalties and interest. Please contact us if you find yourself in a broken house sale chain.
7. You get made redundant and lose your job after exchange of contracts
If you get made redundant after exchange of contracts you are obliged to inform your mortgage lender as this is a material change in financial circumstances.
But on the other hand if you are just told your job could be at risk of redundancy, this is not a change in financial circumstances as you are still employed.
If you are made redundant after contracts are exchanged you’ll need to find a new job pretty fast. Otherwise you risk losing the mortgage offer. If this happens you also risk losing your deposit and other costs associated with a failed completion.
If you are using a mortgage broker, speak to them about your situation. Take their advice as to what you need to do. But be aware if you fail to inform your mortgage company about a material change in financial circumstances, you are possibly committing mortgage fraud.
If you’ve been given a heads-up that you job is at risk of redundancy, you should start to look for alternative job security as soon as possible. As although this isn’t a material change in your circumstances, your main concern is making sure you are able to afford your mortgage payments.
You could always take in a lodger to help cover the mortgage payments. But before you do this check your mortgage terms and conditions. You may need a consent to let to take in a lodger. But this depends on the lender.
What are your options if something goes wrong between exchange and completion
A sale/purchase contract is a legally binding contract. This means there are methods of redress for the innocent party. The redress will depend on what’s contained in the contract, but will usually include penalties and interest.
But it’s unlikely that damages will ever be enough of a substitute over moving to your new dream home.
Before you pursue damages against the person in default, make sure they have sufficient assets available to pay. There’s no point in pursuing them for damages and incurring additional costs if there’s no chance of recovery.
For example, the person in default may be a first time buyer. This first time buyer is likely to have a low deposit needed a large mortgage to buy your home. They may not have any money other than the deposit.
If they don’t complete they will forfeit their deposit. You may as well retain their deposit and move on, otherwise you could be throwing good money after bad.
Whatever the situation, claiming damages is likely to be a lengthy and potentially expensive process.
Whilst most property transaction go through without any of problems described above, it’s always worthwhile knowing in advance what can go wrong.
One solution to all of the above problems is to opt for a simultaneous exchange and completion, i.e. to exchange and complete on the same day.
Important reading before you leave this article:
There’s one sure way to significantly reduce your risk of what could go wrong between exchange and completion. Which is to sell your house and rent before buying again.
There are 15 advantages to this strategy, so before you decide what to do please take a quick read of this article before you go; Are you better selling your house and renting before buying again.
What can go wrong on completion day?
Since you exchanged contracts, you’ve been excited for the day of completion. But then for whatever reason something goes wrong on the day of completion.
So what can go wrong on completion day?
- There could be a problem with the transfer of funds on completion day. If the vendor’s solicitor doesn’t receive the completion funds, completion cannot happen.
- Your solicitor could be ill on the day of completion. If you use a one-man-band for a solicitor and your solicitor is sick on the day of completion, there won’t be anyone to exchange the contracts and transfer the funds.
- Your or your seller’s removal firm may not arrive on completion day. This could be as a result of staff sickness or a broken down vehicle.
- The vendor may remove certain fixtures you thought were included in the sale. Vendors have been known to take light fittings, light bulbs and so on. This can make your first night in your new home a bit of a challenge. You may be eating by candle light!
Please don’t forget to read this before you leave…
Please don’t forget to also read this article to discover how you could save £71,475 on your next mortgage if you sell your house and rent before buying again. As I said earlier, even I was amazed when I did the calculations!
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