Purchase And Sale Flashcards
4 main methods of sale
Private treaty
Informal tender
Formal tender
Auction
Factors to consider when selecting which disposal method to use?
Client’s objectives
Current and likely future market conditions
Likely level of demand for the property
Timing requirements
What is private treaty?
Parties are free to negotiate in their own time and without commitment in the open market.
Most popular method in England & Wales
Advantages of private treaty
Flexibility
Parties control the process
Confidential
Vendor has no obligation to sell
Disadvantages of private treaty
Potential for gazumping or gazundering
Late decisions not to buy
- Associated abortive costs
What is Informal Tender?
Used when good level of interest in the property.
Invite parties to put forward their ‘best bid’. These are to be opened in-front of client / independent person to ensure correct procedure
‘Best bids’ procedure isn’t legally binding so either party can withdraw at any point up to contract
Important to note ‘vendor reserves the right not accept the highest, or any, offer’ if not, bids could become binding
What is Formal Tender
Sealed bids submitted. No opportunity for parties to increase bids after their offer is submitted.
Usually used by statutory bodies to provide high level of public accountability and transparency.
Usually proceed to contract with preferred purchaser as soon as bids opened. In some cases contacts can be exchanged as soon as best bid selected
Difference between formal and informal tender?
Formal
- single chance to bid
- detailed terms and conditions for the sale published in advance alongside the opportunity to bid letter
- can lead directly to a contract for sale
Informal
- usually less onerous terms and conditions prepared
- will not lead directly to a contract for sale and further negotiations can follow after bids are opened
- can be used during negotiations to get best offer
Advantages of auction
Short timescale
Certainty of same, assuming reserve price is achieved.
Useful for unusual property which is difficult to value but there is likely to be strong interest for.
Disadvantages of auction
Cost
Lack of confidentiality
Short marketing period
Vendor has no control over purchaser or price (save for a reserve)
If it doesn’t sell at auction then potential Blighting of the property
How does an auction work
Contracts exchange at fall of the gavel
Deposit paid on the day
In line with RICS Common Auction Conditions then payment is due within 20 working days
Consequences of non payment after an auction
If the buyer fails to pay the balance, they could face legal consequences and financial penalties, including forfeiture of the deposit and potential claims from the seller.
3 types of agency
Sole agency
Joint agency
Multi agency
Sole agency
Only one agent
Joint agency
Multiple agents who share a fee on pre agreed basis
Multi agency
Multiple agents but only the successful agent gets a fee
Timeline of a sales instruction
- Check competence and independence.
- Issue and receive instruction agreement from client (s.18 Estate Agents Act 1979)
- Complete AML and sanctions check
- Gather information and undertake due diligence
- Check VAT position of the vendor
- Inspect and measure. Confirm position regarding fixtures and fittings with the client.
- Research market, assemble and analyse comparable evidence. Undertake Val of the freehold interest (not red book)
- Prepare marketing report for the client
- Gain written approval of the contents of marketing particulars
- Undertake marketing campaign
- Negotiate sale , draft HoTs and instruct lawyers. Assist with any queries during this.
- Facilitate practical arrangements for completion
- Issue invoice upon completion
fixtures and fittings
fixtures are permanently attached to the property and form part of it, while fittings are items that can be easily removed without damaging the property
Agency instruction Agreements
Requirement of ROC and Estate Agent Act (section 18 and 21)
Statutory cooling off period (Consumer Rights Act 2015)
Must set out
- agency basis and Agency rights
- proposed fee
- Marketing costs
- confirm no COI
- Money laundering regulation requirements
- timescale for paying fees and marketing costs
Must be signed before marketing commences
Sole selling rights vs sole agency
In sole agency, fee only due if agent introduced purchaser within the term of the instruction agreement. No fee if client finds purchaser.
Sole selling rights, mean that that fee is due even if purchaser doesn’t introduce the buyer during the sole selling period. Fee also due if sold to a purchaser introduced by the agent during the SSR period.
Forms of purchase vehicle
SPV - company formed specifically to buy a property to reduce the SDLT
REITs - company listed on stock exchange with has at least 75% of business in property investment
JV between two parties
What is a ‘ready and willing purchasers’ clause?
Defined with Estate Agents Act 1979
When an applicant is ready and able to proceed with a purchase but the client then decides to withdraw an abortive fee may be charged.
Failure to Complete
Vendor can serve a Notice to Complete on proposed purchaser giving a deadline to complete.
If deadline passes then vendor can rescind the contract and retain the deposit.
Costa of this are to be paid by proposed purchaser and they can also sue for damages to claim for loss in value following sale of the property to another party at lower sale price
Estate Agency Act
1979
Key points are:
S18 - terms of agency
S21 - openness regarding to conflicts of interest
Misrepresentation Act
1967
Civil Legislation - can be sued for damages or contract rescinded (can cover against it with disclaimer).
I’m relation to false statements made during pre-contract enquiries that induce a party to purchase.
Misrepresentation can be fraudulent, negligent or innocent
Consumer Protection Regulations
2008
Criminal offence - unlimited fine or up to 2 years in prison
Duty to buyer/ potential buyer and seller. Cannot give false/misleading info or fail to provide key info.
Agency process must be demonstrated with audit trail.
Town & Country Planning (control of advertisements) regulations
2007
Planning consent needed for non-resi boards which are over 2sq m (flat) or 2.3sq m (v board) - only one per building
Illuminated boards or boards on listed buildings need planning consent.
Must have owners approval and must be removed within 14 days after completion.
Conflict of interest- UK Commercial Property Market Investment Agency
2017
Bans dual agency (e.g acting for buyer and seller)
Requirements for reoccurring COI checks with regards to provision of incremental advice
Professional Standard: property agency and management principles
Effective as of 1 Jan 25
Temporary overarching document for agency whilst UK commercial and UK residential agency documents are being updated.
Sets out ethical principles and how to apply ROCs in agency/management
