Factors governing the methods of disposal/acquisition and the advantages/disadvantages of each Flashcards

1
Q

What are the FOUR main methods of sale?

A
  1. Private treaty
  2. Informal tender (best offers / bids)
  3. Formal tender (sealed bids)
  4. Auction
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2
Q

What factors should be considered when selecting the method of sale?

A

o Client’s objectives
o Public accountability
o Current and likely future market conditions
o Likely level of demand for the property
o Timing requirements

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3
Q

What is the Private Treaty method of sale?

A

The parties = free to negotiate in their own time

Without commitment in open market

Most popular method of sale used in England & Wales

Private and negotiations = confidential between parties

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4
Q

What are the advantages of Private Treaty?

A
o Flexibility
o The parties control the process
o Vendor not under any obligation to sell
o Confidential
o No time constraint
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5
Q

What are the disadvantages of Private Treaty?

A

Potential for gazumping (when a seller accepts verbal offer on property but then accepts higher offer from someone else / seller raises asking price / asks for more money at last minute)

Potential for gazundering (when buyer reduces their offer just before exchange)

Late decisions not to buy

Associated abortive costs

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6
Q

What is the Informal Tender (best offers / bids) method of sale?

A

Agent invites in writing all interested parties to submit their ‘best and final’ offer within time scale

Not legally binding upon parties, so either party can withdraw at any point up to contract

Still possible for higher offers to be made and accepted, but = unfair

All bids should be opened in front of an independent witness

If receiving a late bid, you will need to inform your client of late bid as could appear unfair for other bidders if a late bid = accepted

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7
Q

What is generally included in a letter to interested parties of an INFORMAL Tender (best offers / bids)?

A

Required date and time of receipt of the written offer

Name and address of the applicant’s solicitor

Confirmation of finance arrangements

Details of any conditions attached to offer

Confirmation that offers of a variable nature (i.e. an escalator bid) = not be considered

Vendor reserves right not to accept highest / any offer made = MOST important! Without this statement, the informal best bids process could become a binding tender

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8
Q

What are the advantages of Informal Tender (best offers / bids)?

A

Timing: if seller wishes to sell within a certain timeframe and act quickly

Transparency: seller can see all offers made for property

Potential higher offer: tenderers will be mindful of likely competition for property = maximise price achieved

No obligation: for sellers to accept highest / any of offers if none = acceptable

Agreed sale price remains confidential

Effective method where competition is strong and choice of buyer is likely / anticipated

Properties with unusual characteristics, making them difficult accurately to value = optimum prices when sold by informal tender

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9
Q

What are the disadvantages of Informal Tender (best offers / bids)?

A

Uninformed offers: buyers = not informed about true value of property, can lead to lower-than-expected offers

Drawn-out sale process: seller can often be unsatisfied with offers and re-negotiate = drawn-out process

Expensive marketing campaign: whilst marketing time-frames = limited, can sometimes end up costing more

Fewer prospective buyers: short marketing campaign reduces time given to inform prospective buyers and lack of awareness

Process can end in a no sale

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10
Q

What is the Formal Tender (sealed bids) method of sale?

A

Often used by statutory (legal) body to control marketing process / to provide high level of public accountability / when strong level of interest in property = likely

Tenders = invited sometimes in excess of specified figure

Vendor can state that they = under no obligation to accept highest bid

Full marketing pack provided in advance, including comprehensive legal pack and letter setting out info required accompanying offer

Applicants effectively bid blindly

All bids should be opened in front of an independent witness

No opportunity for bidders to change / increase bid after submission of offer

Usually no immediate exchange with highest bid but client can proceed to Contract, in accordance with T&Cs of sale = can speed up process to exchange contracts

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11
Q

What type of sale is formal tender suitable for?

A

Used with some land transfers

Large, expensive properties often with specialised use / properties sold on behalf of government department

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12
Q

What are the advantages of Formal Tender (sealed bids)?

A

Can be concluded quickly where it is unconditional

Avoids tentative time-wasting enquiries

Vendor does not need to accept any offer if not satisfactory (if clear in tender invitation)

As bids are not public, tenderers should put forward their best offer

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13
Q

What are the disadvantages of Formal Tender (sealed bids)?

A

Potential purchasers = often put off by procedure where they commit contractually upon making any offer

Little room for negotiating offer; method = inflexible for any conditional offers, e.g. subject to planning etc.

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14
Q

What are the differences between an Informal and Formal Tender?

A

An informal tender (best bid):

  • Can be used during private treaty negotiations to obtain best offer from applicants
  • Further negotiations can follow on from outcome of this process
  • Usually less onerous terms/ conditions are prepared
  • The informal tender will not lead direct to a contract for sale
  • Vendor usually states they are under no obligation to accept highest / any offer

A formal tender (sealed bid):

  • Provides a potential purchaser with a single chance to bid for a property
  • Detailed terms/ conditions for sale = prepared by vendor and published in advance with offer to bid letter
  • No opportunity for a further bid
  • Highest figure = accepted (unless vendor reserves right to refuse any / all offers accepted and not agree to take highest bid)
  • Possible for the formal tender to lead direct to a contract for sale
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15
Q

What is a short summary for the differences between an Informal and Formal Tender?

A

Summary:
Informal tender: private treaty → informal tender → perhaps more negotiations → sale

Formal tender: formal tender only → sale

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16
Q

What should you always remember with formal and informal tenders?

A

Remember the Magic Words – “The vendor is under no obligation to accept the highest, best orany bid” = used for both formal and informal tenders

17
Q

What is the Auction method of sale suitable for?

A

Suitable where changes in value in the market and resulting valuation uncertainty

18
Q

What is the procedure during the Auction method of sale?

A

ToE must be agreed in writing in advance

COI and money laundering checks prior to instruction

Clarity required re. Auctioneer’s rights to refuse bids, to regulate the bidding increments, to accept proxy, telephone, Internet and postal bids and to sign contract on behalf of the vendor

Full due diligence completed prior to offering property for sale

All relevant documentation regarding property must be available for inspection in advance of auction

General Conditions of Sale, Memorandum of Sale and any notices to bidders = published by Auctioneer

Auction particulars = prepared in accordance with requirements of Property Misdescriptions Act 1991 and Misrepresentation Act 1967

A reserve price (below which property will not be sold) = agreed with vendor

Contracts exchanged at fall of the gavel

Insurance required by purchaser at point of exchange

19
Q

What actions are required by a purchaser PRIOR to auction day?

A

View property and consider a structural survey

Take proper legal advice and complete due diligence

Read the Notice to Prospective Buyers

Arrange a deposit of 10% and insurance for exchange

Provide ID for money laundering procedures

20
Q

What RICS guidance is available for Auction sales?

A

RICS PS: Auctioneers selling real estate 7th edition, March 2018

RICS Information Note: Common Auction Conditions for Real Estate Auctions 4th ed, 2018

RICS PS: UK Client money handling 1st edition, October 2019

21
Q

What are the advantages of Auctioning?

A

Relatively short timetable for disposal of property

Certainty of sale, assuming a reserve figure is placed

Useful method of sale for unusual property which is hard to accurately value

Used for a property which is likely to generate a strong level of interest

22
Q

What are the disadvantages of Auctioning?

A

Cost of promotion and publicity

Lack of confidentiality over the price achieved

Intensive nature of a short marketing period

23
Q

What Acts are the Auctioneer’s legal and professional responsibilities defined by?

A

Auctioneers Act 1845

Sale of Land by Auction Act 1867

Estate Agents Act 1979

Property Misdescriptions Act 1991

24
Q

What does the RICS PS: Auctioneers selling real estate 7th ed, March 2018 provide advice on?

A

Introduces RICS Common Auction Conditions (CAC) = members can adopt to regulate conduct of auction parties and contract between seller and buyer

Terms for accepting deposits, appointment, reserve price, marketing etc.

The auctioneer’s relationship with the buyer / purchaser

Money laundering regulations

Publication of auction results

Data protection

Sale of qualifying investments under the LTA 1987

25
Q

What are the aims of the RICS CAC?

A

Ensures the contract = as user-friendly as possible

Increase convenience of going to auction by providing a common set of conditions for all auctioneers in England and Wales via one document

Reduce legal costs to buyers and sellers by using a contract that is in common usage

26
Q

What is the most important feature with informal tender?

A

The vendor reserves the right not to accept the highest / any offer made - this is MOST important! Without this statement, the informal best bids process could become a binding tender