Purchase and Sale Flashcards
What are the 4 main methods of sale?
- Private Treaty
- Formal Tender
- Informal Tender
- Auction
What is the private treaty method of disposal?
Private Treaty:
- Property marketed openly (marketing particulars)
- Private offer made in writing
Parties free to negotiate in their own time without commitment in the open market.
What are the advantages and disadvantages of Private Treaty?
Advantages:
- Flexibility
- Parties control the process (negotiate in own time)
- No obligation until contracts exchanged
Disadvantages:
- Gazumping (accepting an offer and going back on that to accept another)
- Late decisions not to purchase
- Abortive costs
What is the Informal Tender method of disposal?
Usually where there is good demand or negotiations need to be brought to a close after private treaty.
- Seller invited interested parties to submit written best and final offers by a given date and time.
- Sealed bids are opened in front of an independent witness and the parties informed of the outcome.
- Process is not legally binding and either party reserves the right to withdraw until the point of exchange.
** Vendor reserves the right not to accept best bid / highest bid - This needs to be stated in informal details to ensure this doesn’t become a binding tender.
What if a bid is received after the given best and finals date and time?
Under the estate agents act 1979, the seller must be informed however the RICS consider accepting late bids to be unethical.
What if 2 bidders submit the same unconditional offer at best and finals?
There may be rounds of bids to bring the process to a close.
What is an escalator bid?
This is not permitted.
It is when a buyer is willing to raise their offer should the seller receive a higher competing offer.
What information is required on from the bidders during best and finals process?
- date and time for receipt of written offer
- name/address of
solicitor - finance arrangements (mortgage, cash)
- conditions attached to the offer (sale of current property)
- reserve the right not to accept any offer made
What are the advantages/disadvantages of an informal Tender?
Advantage:
- vendor under no obligation to accept an offer
- known time period
-further negotiation can follow
Disadvantage:
- Not legally binding so either party can withdraw up until contract.
What is the formal Tender method?
Used when strong demand for a property or statutory body to control process and provide transparency
- Sale is publicly advertised and tender pack provided including full marketing material, a legal pack and requirements for the contents of written bids (i.e. in excess of a specified figure)
- Applicants bid blind and no opportunity to withdraw or alter once submitted.
-Offers opened in front of an independent witness and sellers agent will make a recommendation on which to proceed with
- parties proceed to exchange in accordance with T&Cs of sale or bankers draft is accepted and contracts exchanged immediately.
What are the advantages/disadvantages of Formal Tender?
Advantages:
- Quicker process as info provided in bid
- Binding contract
- Vendor can be under no obligation to sell to highest /best bid if stated
Disadvantages:
- No negotiation
What is the difference between a formal and informal tender?
Formal Tender
- single bid
- binding on both parties
Informal Tender
- may be rounds of bidding
- Can be used during private treaty to obtain best offer and bring negotiation to close
- further negotiation can follow
- less onerous terms
What is the Auction method of disposal?
- Terms of engagement are agreed between seller and auctioneer (before auction) including the right to refuse bids, types of bid accepted, reserve price and authority to sign the contract on the seller’s behalf.
- Land is sold through an open auction, available to anyone.
- Sales will be publicly advertised in advance.
- A binding legal agreement is created
when a bid is accepted by the auctioneer (bidder usually pays 10% deposit)
What are the advantages/disadvantages of Auction?
Advantages:
- short certain timescales
- ‘Best price’ can be achieved after wide market exposure
Disadvantages:
- little control over identity of purchaser
- not confidential
-short marketing period
When would you suggest proceeding to auction a property?
- a property is in poor repair, has serious defects or is unusual
- where a quick sale is required
- redevelopment or renovation is required
- high demand is expected
What is a reserve price (auction)?
the minimum amount that a seller will accept as the winning bid.
What is stamp duty land tax (SDLT)?
When buying a property or land over a certain price, they must pay SDLT.
For non-residential properties (over £150,000)
Up to £150,000 – Zero%
£150,001-£250,000 – 2%
Above £250,000 – 5%
What factors do I need to consider when advising on the most suitable method of sale?
Client’s objectives
Public accountability
Market conditions
Timing of sale
Marketing budgets
What is capital gains tax?
Capital gains tax is a tax on the profit when you sell something that’s increased in value since purchase.
What must agency instruction agreements clearly set out?
- Agency basis (sole/joint agency)
– Agency rights ( sole selling or soul agency rights)
– Proposed fee
– Marketing costs and disbursements
– Confirmation of no conflicts
– Money laundering regulation requirements
– Timescale for payment of fees and disbursements
– Details of complaints handling procedure
Terms of engagement must be signed and returned before marketing can commence.
What is a ‘ready able and willing purchaser’ clause?
It is when an applicant is ready and able to proceed with the purchase but the client withdraws and an abortive fee may be charged by the agent.
Tell me about the timeline and what the process of a sales instruction includes?
- Instructions
2.Competence/independence
3.Terms of engagement - Receive signed agreement
- Money-laundering checks
- Gather information
- Due diligence
- VAT position
- Inspect/measure
- Market research
- Valuation
- Marketing report
- Approval of marketing particulars
- Marketing campaign
- Negotiation of sale, 16. HOTs – instruct lawyers
- CPSEs
- Assist lawyers
- Issue invoice on completion
- Log on database
What are the core principles of the RICS UK commercial estate agency professional statement, 2016?
(12 core principles)
- HONESTY, fairness, transparency and professionalism
- Due SKILL, care and diligence
- TERMS OF BUSINESS - fair and clear with CHP
- Avoid CONFLICTS – Deal with them openly and fairly
- Don’t DISCRIMINATE unfairly
- Client COMMUNICATION - fair, decent, clear, timely and transparent
7.MARKETING/ADVERTISING – honest/truthful
- CLIENT MONEY – held separately with adequate insurance
Hold appropriate PII - IDENTITY OF CLIENT – ensure all parties are clear of obligations
- REALISTIC ASSESSMENTS -use market evidence/best professional judgement
- MEETINGS - are as per clients wishes - Ensure security and personal safety
What are the most important points in the estate agents act 1979?
Section 18:
Clear terms of agency/business – specify all costs/fees in advance.
Section 21:
Disclosure of personal interests – a connected person who could benefit financially from the transaction.
What does the estate agents act 1979 apply to?
Disposal/acquisition of interest in land.
Freehold property
Leasehold property with a capital value
Land
What would you have regard to when disposing of a freehold or new lease over seven years?
Land registration act, 2002
Principal legislation governing land registration in England and Wales (registration with Land Registry)
** ensure compliant plans etc
What would you expect to find on a land registry compliant lease plan?
Drawn to metric scale – 1:100 or 2:200
Northpoint
Scale location plan – 1:1250
Demise line in red – internal wall
Address in full
Scale measurement bar
Scale noted on plan
How would you decide which of sale to use?
Choose the most appropriate method of sale I would consider:
- The clients objectives
- Public accountability of the client
- Market conditions – current and future
- Likely level of demand
-Timing
Why would you recommend the private treaty method of sale?
It is flexible
There is no obligation for the Vendor to sell
It is confidential
No time constraint
No commitment to open market
What are CPSEs?
Commercial Property Standard Enquiries
Can you tell me what the different CPSEs are?
CPSE1 – general enquiries
Supplemental
CPSE2 – commercial tenancies
CPSE3 – grant of a lease
CPSE4 – assignment
What must you do prior to publishing marketing material?
Obtain written approval of the marketing material from the Vendor.
Under the consumer protection regulations, 2008 and the misrepresentations act, 1967.
Can you tell me some typical forms of purchase vehicles?
Joint ventures
REITS– Real estate investment trusts
SPV – special purchase vehicle
What are purchases costs?
These are the likely costs incurred when purchasing a property.
This includes stamp duty - 0/2/5%
Agents fees - 1%
Legal fees - 0.5%
How is stamp duty charged?
On an incremental basis
What is a party wall?
A wall which sits on the Boundary of land belonging to 2 or more owners.
Always recommend client seeks specialist advice.
What is a WAULT?
Weighted Average Unexpired Lease Term
It is calculated by multiplying the percentage waiting of rent by the term remaining on each lease.
What are rights of light?
This is where the party enjoys on interrupted enjoyment of light.
It arises after 20 years of uninterrupted enjoyment without consent of an easement.
What is the definition of freehold?
A fee simple absolute in possession.
As set out in the law of property act 1925
(Own the building and land it stands on)
What is the definition of leasehold?
A term of years absolute in possession as per law of property act 1925
(Exclusive possession for a period of time)
What is an agency instruction agreement?
This sets out the basis of agency.
What do you diligence do you undertake prior to selling a building?
Valuation due diligence
Marketing due diligence
Statutory due diligence
Building specific due diligence
What is Valuation due diligence?
This would include gathering comparable evidence of rental values and yields.
What is Marketing due diligence?
What is statutory due diligence?
- Asbestos
- Epc
- Fire safety
- Health and safety
What is included in heads of terms?
Property
Vendor details
Purchase details
solicitors details
agents details
price
VAT
conditions of sale
timescales
legal costs
Give me 5 key factors that have an impact on value?
Location
Lease terms
Covenant strength
Condition of the property
Transport and amenities
Size and use
What is the leading caselaw on misrepresentation?
Misrepresentation Act 1967
Give me an example of some conditions of sale?
- conditional on planning,
- conditional on Company approval
What is the SDLT requirement for residential property?
SDLT only applies to properties over £250,000.
The amount you pay depends on:
-when you bought the property
-how much you paid for it
What is the difference between a leasehold and freehold?
Leasehold exists for a period of time.
A freehold is infinite
