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.
