Purchase and Sale Flashcards
What are the 4 main methods of sale?
Private treaty
Informal tender
Formal tender
Auction
What factors should be considered when choosing a method of sale?
Client’s objectives
Public accountability
Current and likely future market conditions
Likely level of demand for the property
Timing requirements
What is private treaty?
A bilateral agreement, privately negotiated between purchaser and seller. Most common method especially for residential.
Details of property often circulated with asking price and buyer submits an offer.
Why are the advantages of Private Treaty?
Flexibility
The parties control the process and negotiate in their own time
Vendor not under obligation to sell
Confidential
What are the disadvantages of private treaty?
Potential for gazumping and gazundering
Late decisions not to buy
Associated abortive costs
What is gazumping and gazundering?
Gazumping is when another party has a higher offer accepted on a property that you are already in the process of purchasing.
Gazundering is when the seller has accepted an offer but the buyer lowers offer at last minute.
What is informal tender?
Written offers are invited but the asking price is not stated and the vendor is not committed to accepting an offer.
Offers should be opened in front of client/third party
What should be included in a informal tender letter?
Required date to receive offer
Solicitor details
Finance arrangements
Details of any conditions
That the vendor has right not to accept highest, bets or any bid.
Escalator bids not accepted
What are advantages of informal tender?
Not obliged to accept offer and negotiations can continue after.
More flexible than formal tender
Can choose option based on quality of bid, not just price.
When should informal tender be used?
Good interest in the property
When price is not the sole consideration.
Sensitive sites
Competing developers
What is formal tender?
Tender packs with detailed terms are sent out and bids are submitted blindly with no option to withdraw. Highest figure usually accepted unless stated otherwise.
What are the disadvantages of informal tender?
More expensive the private treaty.
Buyer or seller can withdraw as not binding.
What are the advantages of formal tender?
High level of accountability
Can lead directly to contract for sale
Moves quickly once bid accepted.
What are the disadvantages of formal tender?
Expensive
Full marketing material and legal pack required from the start
No opportunity for purchaser to increase price
No opportunity to negotiate further after bids
Complex so rarely used
When should formal tender be used?
Often by public bodies when to provide control and transparency
When high level of accountability is required
When there is strong interest in property
What are the differences between formal and informal tender?
Formal has no opportunity for further negotiations
Formal higher accountability
Formal generally highest bid needs to be accepted
Formal requires detailed legal pack in advance
Cannot withdraw in formal without penalties.
Formal more onerous and expensive
Formal quicker once bid accepted
What is auctioneering?
Property sold at auction without a fixed price. Property goes to highest bid.
Successful bidder is legally bound once to purchase once auction ends.
Needs to pay 10% deposit and complete on stated date, usually 4 weeks later.
Buyer needs to arrange surveys, finance etc prior to auction.
What needs to be done prior to auction?
Seller
Terms of engagement agreed
Conflict of interest checks
Money Laundering checks
Full due diligence
All legal documentation available including conditions of sale, contracts prepared
Reserve price
Purchaser
Surveys and viewings
Legal advice
Due diligence
Deposit and financing arranged
What are the advantages of auction?
Quick - contracts exchanged at fall of gavel
Certainty of sale if reserve met
Useful for unusual properties that are hard to value
What are the disadvantages of sale by auction?
Cost of promotion and publicity
Lack of confidentiality
Vendor cannot choose purchaser
Intensive nature - lots to prepare and marketing
What are the 3 types of agency?
- Sole agency - 1 agent
- Joint agency - 2 or more joint agents sharing fee on pre arranged basis
- Multiple agency - a number of agents but only successful one gets fee.
What due diligence might you undertake on receipt of a sales instruction
Read lease
Environmental, planning, contamination details
Check tenant covenants
Enquiries to ensure no material detrimental to sale of property.
What should you check on receipt of sales instruction as part of sales process?
Money laundering checks
Check competence
Conflict of interest
Due diligence
Check VAT Status of vendor
What are some elements of the sales process on receipt of instruction?
Gather information including leases, title, plans, planning info
Inspect and measure property
Research market and assemble comps
Undertake valuation
Prepare report to vendor
Marketing
Negotiate sale
Instruct legals
Assist with any queries
What must be set out in agency instruction agreements?
Agency basis (sole/joint/agency)
Agency rights
Proposed fee
Marketing costs
Confirm no conflict of interest
Money laundering regulation requirements
Timescale for payment of fees
Details of CHP
What does sole selling rights mean?
It is the typical clause.
Means that remuneration will be payable if contracts are exchanged in period when sole selling rights exist even if the purchaser is not found by the agent. Fee also due after sole selling rights ends if the purchaser was introduced by the firm during sole selling rights period.
What is sole agency rights?
Means fee only due if the agent introduced the purchaser within term of the agreement. No fee due if client find purchaser.
What is a ready able and willing purchaser clause?
Defined by Estate Agents Act 1979. Clause included so that if applicant is ready and able to proceed with purchase but client decides to withdraw, the agent may charge an abortive fee.
What is a notice to complete?
In result of failure to complete a transaction, the vendor can serve Notice to Complete on purchaser giving them a deadline.
Legal costs paid by purchaser.
If deadline passes, vendor can remarket property.
Deposit retained by vendor
Vendor can sue for damages if property sold to another party for lower price.
What actions might be undertaken when acquiring property?
Check competence
Conflict of interest check
Agree terms of engagement
Understand client objectives
Measurement and valuation
Check planning
Due diligence
Negotiation
Instruct solicitors
What due diligence might you undertake for acquisitions?
Check planning use/conditions
Asbestos
Legal title
Contamination
Flooding
Structural survey
Tenant covenant check
What is tenant covenant?
Refers to tenants ability to comply with terms outlined in lease. Financial stability, trading history (established), credit rating, assets, industry sector.
What are forms of purchase vehicles?
Special Purchase Company - formed specifically to buy a property to reduce SDLT
Offshore Trusts
Real Estate Investment Funds - Listed on UK stock exchange, mostly in property investment
Joint Venture between 2 parties.
