Purchase and Sale - L2

Question 1

What are the 4 methods of sale?

Answer 1

• Private Treaty
• Informal Tender
• Formal Tender
• Auction

Question 2

What do you need to consider when choosing a method of sale?

Answer 2

• Clients objectives
• Public accountability
• Current and likely future market conditions
• Likely level of demand for the property - likely target market
• Timing requirements

Question 3

What is Private Treaty?

Answer 3

Parties are free to negotiate their own time and without commitment in the open market. Usually the most popular method of sale used in England and Wales

Question 4

What are the advantages and disadvantages of Private Treaty?

Answer 4

Adv:
- Flexibility
- Parties control the process
- Vendor not under any obligation to sell
- Confidential

Disadv:
- Potential for gazumping or gazundering
- Late decisions not to buy
- Associated abortive costs

Question 5

When is an Informal Tender (best offers/bids) process used?

Answer 5

Where there is a good level of interest in the property, either at the commencement of a marketing campaign or to bring negotiations to a conclusion

Question 6

What is the process of Informal tender?

Answer 6

It is not legally binding upon the parties, so either party can withdraw at any point up to the contract. All bids should be opened in front of the client or an independent witness/line manager.

The agent invites in writing all interested parties to submit their ‘best and final’ offer in accordance with the prescribed timescales

Question 7

What should be included in a Informal Tender letter from the agent?

Answer 7

Required date and time of receipt of the written offer.
The name and address of the applicants solicitor
- Confirmation of finance arrangements
- Details of any conditions attached to the offer
- Confirmation that offers of a variable nature (i.e. escalator bid, offering an amount more than the highest offer received) ill not be considered
- The vendor reserves the right not to accept the highest, or any, offer made. - This is the most important bit. (Without this statement, this could become a binding tender)

Question 8

When is a Formal Tender (sealed bids) used?

Answer 8

Often used by a statutory body to give control and transparency over the marketing process

Question 9

What is a Formal tender (sealed bids)?

Answer 9

The vendor can state that they are under no obligation to accept the highest bid.

There is full marketing material, to include a comprehensive legal pack, must be provided in advance of the tender process and a clear letter sent to all prospective purchasers setting out the information required accompanying the written offer

applicants bid blindly in a prescribed form without knowing what other parties are bidding.

All bids should be opened infront of the client or line manager. There is no opportunity for the prospective purchaser to change or increase their bid after the submission of the offer

Usually there is no immediate exchange of contracts upon opening the highest bid, but the client can use this to decide upon the identity of the proposed purchaser and then proceed to contract, in accordance with the terms and conditions of the sale already outlined in marketing materials; this can speed up the process to exchange contracts.

In some instances, as soon as the best bid is selected, the bankers draft is accepted, and contracts are exchanged

Question 10

What is the difference between a formal tender (sealed bid) and an informal tender (best bid)?

Answer 10

Formal Tender:
- Provides a potential purchaser with a single change to bid for a property
- High level of accountability
- detailed terms/ conditions for the sale are prepared by the vendor and published in advance with the offer to bid letter
- No opportunity for a further bid
- Highest figure is accepted (unless the vendor reserves the right to refuse any or all offers accepted and not agree to take highest bid)
- It is possible for the FT to lead directly to a contract for sale

Informal Tender (IT):
- Can be used during private treaty negotiations to obtain a best offer from applicants
- Further negotiations can follow on from the outcome of this process
- Usually less onerous terms/conditions are prepared
- IT will not lead direct to a contract for sale
- Sometimes used as a negotiating mechanism to invite all parties to bid
- The vendor does usually state they are under no obligation to accept the highest or any offer received

Question 11

What are the advantages of auctioneering?

Answer 11

• achieving a relatively short timetable for the disposal of the property
• certainty of sale, assuming a reserve figure is achieved, that the property is sold
• Useful method of sale for an unusual property which is hard to accurately value
• Used for a property which is likely to generate a strong level of interest

Question 12

What are the disadvantages of auctioneering

Answer 12

• cost of promotion and publicity
• Lack of confidentiality over the price achieved
• Vendor cannot choose the purchaser
• Intensive nature of a short marketing period

Question 13

What is the procedure of auctioneering?

Answer 13

• ToE must be agreed in writing in advance
• Conflict of interest checks to be undertaken prior to accepting the instruction
• Money laundering checks must be completed now for all vendors and proposed purchasers in advance
• Clarity required regarding the auctioneer’s rights to refuse bids, to regulate the bidding increments, to accept proxy, telephone, internet and postal bids and to sign the contract on behlaf of the vendor
• Full DD should be completed prior to offering the property for sale
• All relevant documentation regarding the property to be sold must be available for inspection in advance
• General conditions of sale, memoranda and any notices to bidders are to be published by the auctioneer
• A reserve price (below which the property will not be sold) needs to be agreed with the vendor
• Contracts exchange at the fall of the gavel
• The auction particulars in the catalogue must be prepared in accordance with the requirements of the Consumer Protection Regulations 2008 and the Misrepresentation Act 1967
• Specific guidance is provided by the RICS in respect of online marketing and the conduct of electronic bidding and dealing with clients money. Insurance required by purchasers at point of exchange

Question 14

What actions are required by a purchaser (for auctioneering) before the sale day?:

Answer 14

• View the property and consider a structural survey
• Take proper legal advice and complete DD exercise
• Read the notice to prospective buyers
• Arrange a deposit of 10% & insurance for exchange
• Provide ID for money laundering procedures

Question 15

What are the three types of agency

Answer 15

Sole agency - only one agent
Joint agency - two or more doing agents sharing a fee on a pre-agreed basis
Multiple agency - any number of agents but only the successful agents get a fee

Question 16

What is a suggested timeline of a sales instruction?

Answer 16

1. Receive instruction from client
2. Check competence and independence
3. issue agency instruction agreement to client
4. receive agreement signed by client (s.18 Estate Agents Act 1979)
5. Complete and record AML - Money Laundering Regulations 2017
6. Gather info
7. Undertake DD
8. Check VAT position of vendor
9. Inspect and measure property with detailed notes/pictures
10. confirm position with fixtures and fittings
11. research market and assemble
12. Undertake valuation of freehold interest
13. prepare marketing report for vendor with recommendations
14. Obtain written approval of contents of marketing particulars (Consumer Protection Regulations, 2008 and misrepresentation act 1967)
15. undertake marketing campaign as agreed
16. Negotiate the sale, draft heads of terms and instruct lawyers
17. liaise with vendors lawyer in respect of resi property standard enquiries
18. Assist with any quiries during legal formalities
19. Issue invoice upon completion of the transaction and retail file

Question 17

Agency Instruction Agreements:

Answer 17

Requirement of RICS Rules of Conduct & the Estate Agents Act 1979 (s18 and S21) - statutory cooling period of 14 days (CRA 2019)
The instruction must set out the following:
- Agency basis (sole/joint)
- Agency rights (sole selling/sole agency rights)
- Proposed fee
- Marketing costs and disbursements
- Confirmation of no conflicts of interest
- Money laundering regulation requirements
- Timescales for the payment of fees and disbursements
- Details of the practice’s complaints handling procedure

This must be signed off and returned to agent before marketing can commence.

Question 18

What is the Wells v Devani (2019) case about

Answer 18

Agency Instruction Agreement -
Held in supreme court held that a ‘sketchy oral agreement’ made by phone between a residential sales agent and their client was legally binding, interpreted in context and taking parties behaviour into account

Question 19

What are Sole selling rights to a fee and sole agency rights to a fee?

Answer 19

• Typical clause is sole selling rights which means that remuneration will be payable if contracts are exchanged in a period when sole selling rights exist, even if the purchaser is not found by the agent but by another party to include the client
• A fee is due after sole selling rights period ends when the property sold to a purchaser who was introduced by the firm during the period of sole selling rights contract
• Alternatively, sole agency rights can be agreed which means a fee is only due if the agent introduced purchaser within term of instruction agreement. This is a less advantageous position for the agent as they will only get a fee if they introduce the party. If the client finds the purchaser, then no fee will be due

Question 20

What is the ‘ready able and willing purchasers’ clause

Answer 20

Defined by the Estate Agents Act 1979

Often included so 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 by the client

Question 21

Provide insight behind the failure to complete a transaction

Answer 21

The vendor can serve a notice to complete on the proposed purchaser giving them a deadline to complete. The legal costs for this work are to be paid by the proposed purchaser
If this deadline is passed, the vendor can rescind the contract and remarket the property
Any deposit can be retained by the vendor
In addition, the vendor may be able to sue for damages to claim for any loss in value (and associated costs) following the sale of the property to another party at a lower sale price

Question 22

What actions may a property acquisition include?:

Answer 22

• Check for conflicts of interest and competence
• Undertake money laundering check
• agreement of ToE (CIT)
• Understand client’s objectives and agree search parameters
• Consider techniques to find properties - cold calling, advertising, websites
• measurement and valuation
• check planning use/ consent/ conditions/ any proposed developments in the local planning register
• undertake DD for things including asbestos, legal title, contamination, tenant’s covenant checks/ flooding or anything that could have a negaitve impact upon marketability and valuation of the property and conside a condition offer. Arrange for a structural survey to be completed
• Check for any rent or service change arrears
• Covenant approval information to be supplied to the landlord/vendor
• Negoitation and instruction of solicitors
• conditional contracts can be agreed for various conditions to be satisfied post exchange of contract and before completion such as achieving planning consent and VP

Question 23

What are the forms of purchase vehicles?

Answer 23

• SPV companies; a company formed specifically to buy a property to reduce the payment of SDLT
• Offshore unit trusts such as JPUTs (jersey property unit trusts)
• Real estate investment trusts )REIT) - a company tax resident in the uk which is listed on UK stock exchange and has at least of 75% of its business in property investment
• JV between 2 parties