What does Exchange of Contracts mean?

Exchange of Contracts happens when both the vendor and the purchaser have agreed to certain terms and conditions regarding the respective asset, sign these contracts each his own part of it and then exchange them so that each has a genuine document of proof. It is basically the culminating moment in a business transaction, because it is at this point when ownership shifts from one party to the other in exchange of an amount agreed upon in prior.

There is a deposit of usually 10% (but it may also be less) which the buyer pays towards the seller when exchange of contracts takes place. Rarely, but it may happen that although this deposit has been paid, but the purchaser wants to step back from this agreement.

In this case, although it is already late (the 10% supposedly have been paid), it is possible to step back but the deposit will not be recovered. The period of time between the exchange of contracts and the completion which is actually the last phase of such an arrangement, can be as long as thirty days.