In this brief guide, we are going to answer the question “Can a house sale fail after exchange? “.

Can a house sale fail after exchange?

Yes, a house sale can fail after exchange and buyers can pull out after the exchange of contracts. A seller can also pull out after the exchange of the contract. If the buyer pulls out they lose their exchange deposit but if the seller pulls out the buyer can potentially sue them for compensation.

In either case, if any party pull out of a house sale there will certainly be some loss of money.

This is usually much of a bigger loss for the buyer than it is for the seller.

If a house sale fails after exchange, the buyer will usually lose:

  • The exchange deposit – The buyer would have paid an exchange deposit when the exchange of contracts occurred and if the seller refuses to return this then the buyer may be able to sue.
  • The mortgage fees most mortgagees will come with mortgage fees which you may have to pay upfront and these costs are none refundable. If your property sale fails then you will lose this money.
  • The property survey fees – some buyers may elect to carry out property surveys which are different from the mortgage valuation or survey the mortgage lender may carry out. The fees for this are non-refundable.
  • The conveyancing fees – as part of the mortgage process you will have been required t youse a conveyancer to carry out searches, transfer the o=mortgage funds and carry out numerous legal tasks to ensure the closing process goes smoothly.
  • Any storage cost fees – A buyer may have incurred storage costs by moving some of their belongings into storage in anticipation of their move to their new home.
  • Any moving cost fees- you may have already paid your moving fan and hence incurred this cost. Some companies may refund you but this isn’t a guarantee.
  • Any home insurance fees (although a 14-day long-distance rule may apply and a full refund issued) – You may have taken out home insurance since the property is your liability from the day you exchange contracts.
  • Lost income – You may have lost income due to the fact that you intended to rent out the property and generate rental income.
  • Mortgage interest -you may have been charged mortgage interest on your mortgage
  • Removal costs- You may have already hired a removal specialist to assist you with removing things such as your furniture or rugs.

The buyer may be able to claim compensation from the seller through the courts for the above fees.

If a house sale fails after exchange, the seller will usually lose:

  • Conveyancing fees
  • Estate agent fees ( If they sold through an estate agent)

What happens if the house sale fails after the exchange of contracts?

Most sale contracts will have standard conditions of sale which stipulate things which either the buyer or seller will have to pay in the event of either party pulling out of the sale after exchanging contracts.

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Typically the main cost to the buyer, if they pull out of the sale, is that they will lose out on their exchange deposit. 

An exchange deposit can be around 5% of the property price and this is a huge sum when you think about a £500,000 house.

Below are the wordings in a standard sales document which states the costss to each party for pulling out of a sale.

7.4 Buyer’s failure to comply with notice to complete

7.4.1 If the buyer fails to complete in accordance with a notice to complete, the following terms apply.

7.4.2 The seller may rescind the contract, and if he does so:

(a) he may:

(i) forfeit and keep any deposit and accrued interest

(ii) resell the property and any contents included in the contract

(iii) claim damages

(b) the buyer is to return any documents he received from the seller and is to cancel any registration of the contract.

7.4.3 The seller retains his other rights and remedies(see below for examples of remedies).

7.5 Seller’s failure to comply with notice to complete

7.5.1 If the seller fails to complete in accordance with a notice to complete, the following terms apply.

7.5.2 The buyer may rescind the contract, and if he does so:

(a) the deposit is to be repaid to the buyer with accrued interest

(b) the buyer is to return any documents he received from the seller and is, at the seller’s expense, to cancel any registration of the contract.

7.5.3 The buyer retains his other rights and remedies (see below for examples of remedies).

What is the exchange of contracts?

The exchange of contracts is when both the seller and the buyer exchange contracts. At this point, the sale of the house is now legally binding and if any body pulls out there will be repercussions.

At the exchange of contract , the buyer and seller agree to complete the transfer of title on what is now as the completion date or completion.

The buyer will usually have to pay between a 5% and 10% exchange deposit.

The remaining mortgage balance is paid on completion.

Why would someone pull out of a sale after the exchange of contracts?

There are various reasons why someone may pull out of a sale after the exchange of contract, some include:

  • Problems with the mortgage offer– It could be that the mortgage lender has withdrawn their mortgage offer from the borrower due to new issues they found such as bad credit,
  • Problems with a government scheme – If a buyer is using Government scheme such as a help to buy equity loan or a similar scheme and an issue is discovered then the buyer may have to pull out of the sale as they have no other option to complete the purchase of the property
  • Personal circumstances – in some cases, the issues could have come out of the blue and make it impossible for the buyer to continue with the purchase. E.g a financial emergency or the loss of their job
  • .Issues found after the exchange of contracts – If the buyer discovers issues with the house after the exchange of contracts then they may choose to pull out of the sale of the house. Issues could be damp, Japanese knotweed or problems with the structure of the building.
  • Better offer – In some cases, the buyer may find a better-priced building or the seller may receive a better offer for their house and pull out of the sale. These are known as gazanging and gazumping.
  • No vacant possession – On completion the seller must provide the home as vacant possession. This means there must be no tenants in the property. The only time when this is allowed us when the buyer agrees to take on the tenants in the building. This is known as “tenants in situ”.  The buyer could pull out of a sale after the exchange of contracts if it won’t be vacant at completion.

What can you do if someone pulls out of a sale?

There are various things you may be able to do if someone pulls out of the sale of a home, they include but are not limited to the below as any party can sue for losses outside the sales agreement:

  • Removal fees
  • Mortgage fees
  • Mortgage broker fees
  • Rental fees
  • Conveyancing fees
  • Survey costs

In this brief guide, we are going to answer the question “Can a house sale fail after exchange? “.

If you have any questions or comments please let us know.

John Bate

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.