*Methods of Sale Flashcards
What are the 4 methods of sale
- Private Treaty
2 Informal Tender - Formal Tender
- Auction
What is private treaty?
Where the parties are free to negotiate in their own time without any commitment until contracts have been exchanged.
What are the advantages and disadvantages of private treaty?
Advantages
- Parties can control the process
- Inexpensive
Disadvantages
- Gazumping and gazundering
- Can be slow
- Can lead to buyers withdrawing at the last minute - abortive costs
How does informal tender work?
- Where the seller invites best and final bids in writing within a prescribed timeframe.
- The seller is under no obligation to sell to the highest bidder, however it must be stated in writing when inviting applicants to bid.
- All bids should be opened in front of a client or independent witness, however the bids are not legally binding so the bid can be withdrawn or changed.
What are the advantages and disadvantages of informal tender?
Advantages
- Bids may be in excess of seller expectations
- Can be use dot bring negotiations to an end following private treaty
Disadvantages
- Not legally binding, so buyers can still withdraw or change offers
- The nature of bidding against other people may put some buyers off
What is formal tender?
- It is where applicant bid blindly in sealed envelope within a prescribed timeframe.
How does formal tender work?
- A tender pack should be sent out to all applicants in advanced of the deadline date, which should include marketing materials, legal pack and a letter stating the requirements to account the offer.
- Seller is under no obligation to accept the highest bidder, however it should be stated in writing in advance to the applicants.
What are the advantages and disadvantages of formal tender?
Advantages
- Applicants do not know what they are bidding against, therefore bid could be in excess of sellers expectations
- Gives the seller certainty over a closing date for the sale
Disadvantages
- Complex process - Applicants may be put off by the nature of a tender
What is auction?
- Where the parties openly bid for a property and the highest bidder wins subject to a reserve price.
- Used where competition is likely to be strong or where the property is difficult to sell via private treaty.
When are contracts exchanged with an auction?
On the fall of the gavel and 10% deposit is required. Completion and the remaining balance is required within 28 days.
What are the advantages and disadvantages of auction?
Advantages
- Certainty of sale - contracts exchanged on the gavel
- Quick Process
- Competitive nature of bidding may lead to the final sale price being in excess of the sellers expectations.
Disadvantages
- No guarantee the property will meet the reserve
- Can be expensive for a marketing campaign to reach a wide audience and commission likely to exceed what would usually be expected from private treaty.
What is the difference between formal tender and informal tender?
- Informal tender you can change your bid after it has been submitted, whereas with formal tender you can’t.
- Formal tender can lead to a direct change of contract, whereas a bid via informal tender is not legally binding
What method of sale have you advised using?
Informal tender.
Residential development site received 4 asking price offers. To ascertain the choice of buyer, advised my client to proceed to best and final offers.
When would you recommend a sale by auction?
Where a property has been difficult to sell by private treaty. e.g. where property is in need of renovation
or if the client is seeking a quick sale.
When would you recommend a sale by tender?
Where demand is likely to be strong.
