Purchase and Sale Flashcards
What is the legal process to execute a land purchase?
What are the four main methods of sale
- Private treaty
- Formal tender
- Informal tender
- Auction
What is Private treaty?
- Most common method of sale.
- Typical approach used by residential estate agents to sell a house.
- The property is marketed openly (marketing particulars) to afford a potential purchaser to TREAT the seller with an offer.
- Offers made and suitable purchaser usually selected after recommendation is made by the sellers agent (right level and if purchaser is able to proceed)
- Usually ask for:
1. Proof of funds
2. Solicitors details
3. Contextual information on chain or related issues
What are the advantages and disadvantages to private treaty?
Advantages:
- No obligation to sell
- Relatively cheap
- Advertising can be limited or extensive depending on Client requirements
- FLEXIBLITY to negotiate in own time
Disadvantages:
- gazumping (rasing price) and GAZUNDERING (lowering price), both considered unethical
- Risk of LATE DECISIONS not to buy (withdrawals) abortive costs
- not well informed - PRICE could be over or under stated
What is a formal bid?
- Relatively uncommon
- primarily used by public bodies to demonstrate ACCOUNTABILITY
- Costly due to administrative requirements
- Formal bid pack (full marketing material, legal pack and requirements for contents of written bids e.g. excess of a specific figure) issued
- Applicant BID BLINDLY (no alterations)
- After closing date, offers opened in front of an independent witness and sellers agent makes a recommendation which bid to accept.
- After bid is accepted contracts are exchanged immediately. No further negotiations
What are the advantages and disadvantages to formal bid?
Advantages
- Demonstrates accountability
Disadvantages
- Costly - admin requirements
- Time consuming to prepare
- No opportunity to negotiate
- Must accept bid
What is an informal bid (also known as sealed bids)?
Used when:
1. GOOD MARKET DEMAND or 2. Negotiations need to be closed after a period of marketing via Private Treaty
Seller invites buyers to submit WRITTEN best and final bid at a SPECIFIC DATE AND TIME. Generally accompanied with:
- SOLICITOIRS DETAILS
- FINANCIAL ARRAGEMENTS
- CONDITIONS
- Bids opened in front of an independent witness
- No obligation to accept highest bid (or any bid)
- Either party can withdraw up to exchange - not legally binding
Used for
- Sensitive sites - development
- Price is not the only consideration
- Property requires modernization
What are the advantages and disadvantages to informal bid?
Advantages
- Do not have to accept the highest offer (or any offer)
- Can withdraw up to exchange
- Can be used for sensitive sites
Disadvantages
- Higher costs that private treaty
- Can withdraw up to exchange
What happens if there is a late bid in an informal tender
Seller needs to be informed (Estate Agency Act 1979).
RICS considers accepting late bids as unethical practice
What is Auction Sale (aka method of last resort) ?
Used when property is:
- Unique
- Cannot be priced accurately
- QUICK SALE
- High demand
- Serious defects
Should produce the highest price for the circumstances. At auction contracts are exchanged and deposit is paid (usually 10%).
May appeal to cash buyers
What are the advantages and disadvantages of auction?
Advantages:
- Short certain timescales can be achieved
- ‘Best price’ can be achieved after wide market exposure
- The property can be sold with certainty over selling terms
Disadvantages
- Expensive advertising costs
- Not confidential
- Short marketing period
- Failure to sell - property might be blighted
- Little control over purchaser
What factors should be considered when choosing a method of sale?
- Client’s objectives
- Public accountability
- Market conditions
- Timing of sale
- Marketing budgets
What are the different types of property interests that can be bought and sold?
Section 1 of the THE LAW OF PROPERTY ACT 1925 define that land can be bought and sold as
FREEHOLD - an estate in fee simple absolute in possession
LEASEHOLD - A term of years absolute
Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 requires that any contract for the sale of freehold land be in writing.
What is the Estate Agency Act 1979?
The Estate Agency Act 1979
Applies when there is a acquisition or disposal of a freehold interest in property or a leasehold with capital value
It is a key piece of legislation that regulates the activities of estate agents. It ensures FAIR AND ETHICAL PRACTICES and provides PROTECTION for both buyers and sellers.
S18 - Clear agency terms - including costs, in writing
S21 - declaration of any personal interests in marketing particulars and terms of engagement
Set out:
- DENFITION of “ready willing and able purchaser”
- AGENCY BASIS
- if sole SOLE SELLING RIGHTS apply
What are the different agency basis in The Estate Agency Act 1979?
Sole Agency
Joint Sole Agency (2+ sellers sharing a fee)
Multiple Agency with several agents (successful party receives the entire fee)
What offences can take place in the Estate Agency Act 1979 and what are the penalties for non-compliance?
Offences:
1. Acting dishonestly
2. Not providing clarity over terms of engagement
3. Not disclosing a personal interest
4. Not telling the Client about offers received
Penalties for non-compliance:
Warning order OR
Prohibition order (stops an agent acting)
and / or Fine
What is the Misrepresentation Act 1967?
Relates to misrepresentation or a false statement of fact made during PRE CONTRACTUAL ENQUIRIES by the VENDOR or AGENT which INFLUENCES a party to purchase in freehold or leasehold transactions.
Leads to a CIVIL OFFENCE (offence to another person and their rights or property) actionable by tort. Action can be limited by an Effective disclaimer (exclusion) clause
