Purchase & sale Flashcards
What are the four methods of sale?
- Private treaty
- Informal tender
- Formal tender
- Auction
What factors do you consider when choosing a method of sale?
- Client objectives
- Public accountability
- Current and likely future market conditions
- Likely level of demand for the property (target market)
- Timing requirements
What is private treaty?
Parties are free to negotiate privately, in their own time, without commitment in the open market
What are the advantages of private treaty?
- Flexibility
- Parties control the process
- Vendor under no obligation to sell
- Confidential
What are the disadvantages of private treaty?
- Gazumping or gazundering
- Late decisions not to buy
- Associated abortive costs
What is informal tender?
Best bids method, used when there is a good level of interest in the property
Used to bring negotiations to a conclusion
Is informal tender binding?
No - either party can withdraw any point up to contract
Where should ‘best bids’ be opened?
In front of the client or line manager
What is a request for proposals letter?
Vendor agent invitation in writing for interested parties to submit best offers
What is included in a request for bids letter?
- Timeframe for receipt of offers
- Solicitors details
- Finance arrangements
- Conditions / approvals
- Offers of variable nature will not be consider (more than highest offer received)
- Vendor is under no obligations to accept the highest, best or any bid
What is formal tender?
Sealed bids method, used by statutory body to give control and transparency of marketing process
High level of public accountability
Only one chance to bid, cannot increase offers - highest bid typically selected (unless stated otherwise)
Contracts can exchange after bids are received
What are the advantages of auctions?
- Quick process
- Certainty of sale (assuming reserve price achieved)
- Useful for unusual property that is hard to value accurately
- Used for property that is likely to generate a lot of interest
What are the disadvantages of auctions?
- Cost of promotion and publicity
- Lack of confidentiality of price achieved
- Vendor cannot choose purchaser
- Intensive nature of short marketing period
What is the procedure for an auction?
- Terms agreed in advance
- Conflict / AML checks
- Clarify auctioneers rights (bid refusal, bidding increments, accept proxy, contract signing on behalf of vendor)
- Due diligence, relevant documentation made available
- Reserve price agreed with vendor
- Contracts exchange at fall of the gavel
- Particulars prepared in accordance with Misreps / CPR
What actions are required by purchasers before an auction?
- View property and consider structural survey
- Take proper legal advice / complete DD
- Read Notice to Prospective Buyers
- Arrange deposit of 10% / insurance for exchange
- Provide ID for AML procedures
What are the types of agency?
- Sole agency – only one agent
- Joint agency – two or more joint agents sharing a fee on a pre-agreed basis
- Multiple agency – any number of agents but only the successful agent gets a fee
What is a typical sales instruction timeline?
- Receive instructions / check competence and independence
- AML checks (Money Laundering Regulations 2017) / Terms of Engagements (s.18 EAA 1979)
- Gather information / due diligence / inspection
- Financial analysis / market research / marketing report with recommendations
- Client approval of brochure (Misreps 1967 / CPR 2008) / conduct agreed campaign
- Negotiate the sale / draft Heads of Terms / instruct solicitors
- Liaise with vendor solicitors for CPSEs / assist with any queries
- Issue invoice upon completion / retain file
What do you include in terms of engagement for investment agency instructions?
- Agency basis (sole/joint agency)
- Agency rights (sole selling or sole agency rights)
- Proposed fee
- Marketing costs and disbursements
- Confirmation of no conflicts of interest / personal interests
- Money Laundering Regulation requirements
- Timescale for the payment of fees and disbursements
- Details of firms complaints handling procedure
What if a client changes their mind after signing terms?
Statutory cooling off period of 14 days (Consumer Rights Act 2015)
What are sole selling rights?
An agreement whereby the agent would be owed a fee even if they were not involved in introducing the buyer
What is a ‘ready able and willing purchasers’ clause?
Defined by Estate Agents Act 1979 - ensures abortive fees can be charged by the agent if a client pulls out of a transaction even if a purchaser is ready and able to proceed
What happens if you fail to complete a transaction?
- Vendor can serve Notice to Complete – gives deadline to purchasers
- If deadline not met, vendor can rescind the contract
- Deposit can be retained by the vendor
What are some types of purchase vehicles?
- SPV
- Offshore unit trust (JPUTS)
- REITs
- Joint venture
What is the Misrepresentations Act 1967?
Covers misrepresentations and false statements made during pre-contractual enquiries which may lead to a sale/purchase
What are the types of misrepresentation?
- Fraudulent
- Negligent
- Innocent
What RICS guidance is there on conflicts of interest in investment agency?
RICS Conflicts of Interest Professional Statement – UK Commercial Property Market Investment Agency 2017
What does RICS Conflicts of Interest Professional Statement – UK Commercial Property Market Investment Agency 2017 cover?
- Dual agency
- Multiple introductions
- Incremental advice
What are some UK legislations you follow in investment agency?
- Estate Agents Act 1979 – covers sale or purchase or freehold/leasehold property with a capital value (S.18 – terms of business / S.21 – declaration of personal interests)
- Consumer Protection Regulations 2008 – covers entire agency sales and letting process
- Business Protection Regulations 2008 – mirrors CPRs covering business to business activities
- Bribery Act 2010 – aims to reduce bribery in the UK and abroad
- Equality Act 2010 – provides protection against discrimination and inequality
- Proceeds of a Crime Act 2002 – provides powers for enforcement authority to recover proceeds of criminal activity
- Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2019 – due diligence checks must be carried out on both parties to a sale
- Town & Planning (Control of Advertisement) Regulations 2007 – relates to marketing signage
- Estate Agents Regulations 1991 – service to be provided and remuneration must be provided in writing
What RICS guidance do you follow during investment agency work?
- RICS UK Commercial Estate Agency Professional Statement 2016 – 12 core principles of estate agency
- RICS Global Real Estate Agency and Brokerage Professional Statement 2016 – cover the above, but globally
- RICS Global Professional Statement on Conflicts of Interest 2017 – covers the global ‘informed consent’ process
- RICS Professional Statement: Countering bribery and corruption, money laundering and terrorist financing 2019 – as described
When would you not recommend the highest bid is accepted?
- Red flag
- Conditions less desirable (timeframe)
What do you include in marketing materials?
Property information
Misreps disclaimer
What part of Estate Agents Act 1979 covers conflicts?
Section 21 - agent must not enter into negotiations regarding a property in which he or a connected person has a personal interest (unless disclosed to all parties)