Sale Agreed vs Exchange of Contracts: A property ‘Sale agreed’ is when the seller accepts your offer and takes the property off the market. Exchange of contracts is when you and the seller sign the legal contract, at which point the sale becomes legally binding.
What’s the difference between sale agreed and exchange of contracts?
When you buy a property, there’s a lot of terminology to get to grips with. This can cause some bewilderment, particularly amongst first-time buyers in Ireland. A common source of confusion is the difference between sale agreed and exchange of contracts. After all, they both infer a level of commitment to the purchase and the payment of a deposit. However, the two are actually very different things with very different legal implications.
What is sale agreed?
Sale agreed is the first step in the property buying process. It means that you have made an offer on a property and this has been accepted by the seller. In England and Wales, this is known as ‘sale subject to contract’ or ‘STC’.
In Ireland, it is common to pay a booking deposit when a sale is agreed. This is usually between two and five per cent of the agreed price. This does not make the sale legally binding. Really, it is just a gesture of good faith to show the seller that you are serious about going through with the purchase.
You might be a bit concerned about handing over a chunk of money so early on in the process. What if your change your mind, or the survey shows structural flaws? Don’t worry: the booking deposit is 100% refundable until the exchange of contracts. Until that happens, you can withdraw your offer or negotiate a lower sale price. This might be necessary if the property requires more extensive repairs that you initially budgeted for.
Once the sale is agreed, the property can be taken off the market and the conveyancing process can begin. At this point, you need to instruct a property solicitor, if you have not already done so.
What is exchange of contracts?
Exchange of contracts is when the legal contracts are signed by both the seller and the buyer. This happens during the later stages of the conveyancing process, after a survey has been completed, and your solicitor has carried out searches and raised any queries. Exchange of contracts is an exciting moment during a property transaction, as it means the sale is legally binding. Subsequently, the seller cannot withdraw without incurring a penalty.
On the day that contracts are exchanged, the buyer must send the seller the deposit. This is usually between 10 and 20 per cent of the sale price. If you have paid a booking deposit, this will be deducted from the balance. If you later decide that you don’t want to go through with the purchase, you will lose your deposit.
The exchange of contracts is therefore very significant, as it is essentially the point of no return.
Often, the closing date follows closely behind the exchange of contracts.
In conclusion, sale agreed is:
- When the seller accepts an offer from the buyer; and
- The buyer pays a booking deposit to show that they are acting in good faith; but
- This booking deposit can be refunded until the exchange of contracts, if either party withdraws
The exchange of contracts is:
- When the transaction becomes legally binding; and
- Neither party can withdraw without incurring some form of financial penalty
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