Purchase and Sale

Question 1

What are the bases of agency?

Answer 1

1) Sole agency
2) Joint agency -> split the fee on pre-agreed terms
3) Multiple agency -> agent who get the buyer gets the fee

Question 2

What are the types of agency rights?

Answer 2

1) Sole selling rights
- If contracts exchange during the period you have sole selling rights, you get paid (even if you didn’t introduce the buyer)
- If you introduce a purchaser, then the rights end, and they end up buying it, you get paid

2) Sole agency rights
- Fee only paid if the agent introduces the buyer (if client finds purchaser, no fee)

Question 3

What constitutes a buyer? What if the vendor pulls out?

Answer 3

Often include a ‘ready, able and willing purchaser’ clause

• Defined in Estate Agents Act 1979
• If an applicant is ready and able to proceed but the vendor pulls out, the agent can get an abortive fee

Question 4

What do you do if a buyer pulls out?

Answer 4

1) Serve Notice to Complete to give deadline. Any legal costs paid by buyer
2) If deadline passes, can rescind and remarket. Vendor retains the deposit
3) Can sue for damages - e.g. on the market for long period so people bid lower

Question 5

What are the 4 methods of sale?

Answer 5

1) Private treaty
2) Informal Tender
3) Formal tender
4) Auction

Question 6

How do you decide which method of sale to use?

Answer 6

1) Client’s objectives - e.g. definite sale or highest price?
2) Public accountability e.g. state vs investor?
3) Current and future market conditions e.g. falling and want a quick sale?
4) Demand for the property -> target market e.g. laymen will expect private treaty as market norm
5) Timing requirements -> quick sale? Auction.

Question 7

What are the key features of private treaty?

Answer 7

• Negotiate in own time
• No commitment
• It’s a private matter

Question 8

What are the pros and cons of private treaty?

Answer 8

Advantages
o Flexibility
o Control over the process 
o No obligation to sell
o Private

Disadvantages
o No loyalty to party you’ve been in talks with
o Can decide not to buy/sell at last minute
o Abortive costs associated with above

Question 9

Give an example of when you would use Private Treaty?

Answer 9

Residential apartment sales

Question 10

When would you use informal tender?

Answer 10

• Good level of interest from the outset

- Started with private treaty and had more interest than thought e.g. multiple offers at same time

Question 11

What are the pros / cons of informal tender?

Answer 11

Pros

• Informal
• Full control
• No obligation to accept
• Can take time and negotiate further
• Private matter

Cons

• Buyers pull out
• For buyer, no obligation to accept your bid

Question 12

What do you include on letter to bidder?

Answer 12

1) Required date and time to submit bids by
2) Confirmation that variable bids will not be accepted
3) That you reserve the right not to accept the highest best or any offer
4) what to include on bid submission

Question 13

What do you request from bidders?

Answer 13

1) What their bid is
2) Any conditions
3) Confirmation of funding arrangements
4) Name and details of solicitors

Question 14

What is formal tender? When is it used?

Answer 14

A method of sale with strict processes and conditions.

Used generally for sales where there is

1) A high level of general public interest
2) A large number of interested parties

Question 15

What are the characteristics of a formal tender?

Answer 15

1) Information pack is sent to those who express interest. Includes full legal pack with all info and terms
2) Vendor can state they are under no obligation to accept the best or any bid
3) Applicants bid blindly. There is no chance to alter bid, all bids opened at the same time
4) Can have immediate exchange

Question 16

When would an auction be used?

Answer 16

• High level of public interest
• Hard to value the property
• Quick disposal needed
• Want a guaranteed sale

Question 17

Advantages of auction?

Answer 17

• Quick sale
• Certainty of sale (assuming reserve price is met)
• Good for unusual / highly interested property

Question 18

Disadvantages of auction?

Answer 18

• Cost of promotion
• Lack of confidentiality of price
• Lack of choice of buyer
• Intensive period of marketing

Question 19

How would you go about selling a property by auction?

Answer 19

1) ToE, CoI, AML check on vendor
2) Clarity on auction terms (can bids be refused?)
3) Full DD on property
4) Prepare all documents needed - Conditions of sale, Memorandum of sale, notices
5) Set a reserve price
6) Create auction particulars
7) Allow people to view the property

Have to do AML on buyer BEFORE exchange

Question 20

Walk me through a typical sales instruction

Answer 20

1) Understand the sales, reasons for sale – consider competence and if the action is at all suspicious
2) Undertake CoI, AML checks (Section 21 of Estate Agents Act 1979)
3) Get ToE signed (Section 18 of Estate Agents Act 1979)
4) Gather all information on the property
a. All consents
b. Term of sale – what will be included
c. EPC
d. Leases
e. Floor plans
f. Proof of ownership
g. Confirm its all correct (CPRs 2008)
5) Inspect the apartment
6) Undertake a Market Appraisal -> Non-Red Book, no liability
7) Prepare marketing particularly
a. Confirm their accuracy with vendor (CPRs 2008, Misrepresentation Act 1967)
8) Inform client, put all offers to them, negotiate
9) When offer accepted, send letter to all parties and all their solicitors

Question 21

What must be included within an Agency ToE?

Answer 21

• Cooling off period of 14 days
• Agency basis
• Agency rights
• Proposed fee
• Marketing costs
• Confirmation of conflicts of interest
• Ready, able and willing purchaser clause

Question 22

What is in a LoE for agency thats not in a valuation?

Answer 22

1) Cooling off period of 14 days
2) Agency basis
3) Break down of fees (often on a % basis)
4) Additional costs e.g. EPC

Question 23

What do you do when an offer is accepted?

Answer 23

1) Collect AML docs on buyer (ID, PoA, Smartsearch)
2) Draft Memorandum of Sale
3) Email all parties and solicitors confirmation

Question 24

What goes on a memorandum of sale?

Answer 24

Agreed price
Parties names and contact details 
Solicitors details 
Conditions 
Time for exchange/completion 
Fixtures fittings

Question 25

What enquiries would a solicitor do?

Answer 25

Planning
Flood risk
Environmental
Organise a survey

Question 26

What are JLLs typical sales terms?

Answer 26

2-3% + VAT

Sole selling rights

Question 27

What is forward purchase?

Answer 27

1) Developer agrees to sell project to a developer
2) Developer funds the project
3) Investor buys it/pays when it is completed

Question 28

What is forward funding?

Answer 28

1) Sale of development agreed before construction starts
2) Investor pays that price over the course of development
3) Final payment made when title is transferred to investor

Generally investor needs to do more DD (local plan, contractor solvency, design/specification) and there is more legal work on the initial sales agreement

Question 29

Why do a forward purchase?

Answer 29

Investor:
1) Limits construction risk
2) Limits insolvency risk
3) Don't need as much knowledge about development 
Developer:
1) Better price than a forward funding
2) Control over project

Question 30

Why do a forward fund?

Answer 30

Investor:
1) Control over development
2) Pay a lower price for the asset 
Developer:
1) Little financing required
2) Takes on less risk (investor has insolvency and development risk)

Question 31

What is the reservation process for new build property?

Answer 31

1) Offer accepted - fill out offer form (development, property address, purchaser, solicitors, price, finance, requirements, timings)
2) AML checks (passport and PoA)
3) Fill out payment form (confirm AML, property, purchaser, payment details)
4) Take deposit
5) Instruct solicitors to draft contracts/undertake searches as normal
6) Completion will be when the development is complete