Purchase & Sale Flashcards
What are the main methods of sale people have regard to these days?
(What are the 4 methods of sale)
(COMMON QUESTION - TaylorMade book)
- Private Treaty
- Informal Tender
- Formal Tender
- Auction
How would you determine what Method of Sale to use?
What factors determine your method of sale choice?
The client’s objectives for the sale
Public accountability
Current and likely future market conditions
Likely level of demand for the property (target market)
Timing requirements.
What is Private Treaty?
The most popular method of sale in the UK.
The parties are free to negotiate privately, in their own time and without commitment in the open market.
It is a private matter - purchaser makes private offer in writing.
What are the advantages and disadvantages of Private Treaty?
Pros: Flexibility, the parties control the process, no obligation to sell, confidential, inexpensive.
Cons: Gazumping (bidding higher last minute), Gazundering (chipping at the offer), late decisions not to buy.
What is Informal Tender?
(Informal Tender = ‘Call for Bids’)
(Informal Tender = Call for Bids)
Informal Tender is typically used following private treaty - it is a call for bids / offers.
Used when there is a good level of interest in the property and to bring negotiations to a conclusion.
The ‘best bids’ procedure is not legally binding - no obligation to accept the best, highest or indeed any offer.
The agent ‘calls for bids’ in writing and gives a deadline when offers are to be recieved by.
What are the advantages of Informal Tender?
Advantages to the Seller:
Allows room for negotiation
The vendor is under no obligation to accept the best, highest or indeed any offer.
Inexpensive (compared to auction)
Advantages to the Purchaser:
They have the ability to alter their offer
They can withdraw their offer after it has been submitted.
What are the disadvantages of Informal Tender?
Disadvantages to the Seller:
Possibilities of offers made by bidders who had not secured full finance
Conditional bids (i.e. conditional on planning / finance)
May discourage potential buyers in difficult market conditions (sitting on the fence).
Disadvantages to the Buyer:
From a buyers perspective they can be played off against one another
The vendor is under no obligation to accept the best, highest or any offer.
Is Informal Tender legally binding?
No - either party can withdraw at any point up to contract.
Where should ‘best bids’ be opened?
In front of the client / independent witness / line manager.
What is included in a ‘Call for Bids’ letter?
What do you include when you call for bids?
Bid deadline - required date and time for offers to be recieved no later than (x).
Confirmation the vendor is under no obligation to accept the best, highest or any offer.
Confirmation of any conditions attached to the offer (e.g. subject to planning).
Confirmation of finance arrangements.
Confirmation that offers of a variable nature will not be considered (e.g. offers cannot be linked to other offers).
Confirmation of the applicant’s Solicitor’s Details.
What is Formal Tender?
(Formal Tender = Sealed Bids)
(Formal Tender = A Sealed Bids Process).
Often used by a Statutory Body / Public Sector Body to give transparency over the process and prove who got the highest price.
Provides a high level of public accountability
No opportunity for parties to amend / change bids after submission.
Full marketing material & legal pack must be provided in advance of the tender process - including a legally binding contract for sale.
What are the advantages and disadvantages of Formal Tender?
Advantages:
Quicker process to exchange of contracts as there are no lengthy negotiations and the bid can lead direct to a contract for sale.
High level of public accountability and transparency
Removes the risk of Gazumping / Gazundering
Disadvantages:
Can be a complex process
There is no opportunity for a purchaser to change or increase the bid.
What is the typical process for Formal Tender?
Full due diligence pack required (including marketing martial, a comprehensive legal pack and contract) MUST be provided in advance.
Letter sent to all prospective purchasers clearly outlining terms and conditions of the sale.
All bids should be opened in front of the client or independent witness.
The exchange of contracts will take place upon the basis of the Terms & Conditions set out in the full DD pack.
Does the vendor HAVE to accept the bid with Formal Tender?
No - typically the vendor will state they are under no obligation to accept the best, highest or any offer.
Important wording - this can be used in both informal and formal tender.
What would you advise to be included in any Informal or Formal Tender process to protect your client?
A caveat that “the vendor is not obligated to accept the highest, best, or indeed any offer”.
This gives the client more control and they can chose not to sell, without consequence.
What are the differences between Informal and Formal Tender? Can you summarise these for me briefly?
Informal Tender = Call for Bids, whereas Formal Tender = Sealed Bids.
Offers are best and final with a formal tender, whereas informal tender has the opportunity to increase of change after submission (gazumping / gazundering).
It is possible that formal tender will lead directly to exchange of contracts, whereas informal tender will not.
When might you use an Auction?
Used when the vendor wants a quick transaction & fast means of sale.
Good for unusual property types.
What are the advantages of an Auction?
Quick process - auction provides a fast means of sale.
Certainty of sale (assuming reserve price achieved) - you know it has sold.
Potential to generate a higher price if two or more parties are competing.
Transparency
What are the disadvantages of an Auction?
Expensive for the vendor (cost of promotion and publicity)
Lack of confidentiality (over the price achieved)
Vendor cannot choose the purchaser
Intensive nature of a short marketing period
May create a negative stigma if the property fails to sell
Are auctions legally binding?
Yes - the successful bidder is legally bound to purchase when the hammer falls on the bid.
What actions are required by Purchasers PRIOR to an auction?
View property
Take legal advice & due diligence
Read the Notice to Prospective Buyers
Consider commissioning a structural survey
Arrange a 10% deposit for exchange (hammer fall) and insurance.
Provide ID for AML regulations.
What actions are required by the Auctioneer PRIOR to an auction?
Conflict of Interest checks must be undertaken.
Terms of Engagement must be signed and agreed with the vendor in advance.
They must have inspected the property
Recommend reserve price (below which the property will not be sold) and guide price to vendor.
Clarify the auctioneer’s rights (e.g. if they can accept telelphone/internet bids, regulate bidding increments).
Provide auction pack for purchasers including all relevant documentation
Prepare catalogue particulars - in line with Consumer Protection Regulations (2008) and Misrepresentation Act (1967).
What are the different bases of agency when marketing a building?
(What are the 3 bases of agency?)
(COMMON QUESTION - TaylorMade book)
- Sole Agency (only one agent gets the fee).
- Joint Agency (Two or more joint agents and the fee is split on a pre-agreed basis).
- Multiple Agency (Any number of agents but only the successful agent get the fee)
Which Section of the Estate Agents Act (1979) relates to Bases of Agency?
Section 18 of the Estate Agents Act
What are Sole Selling Rights?
The agent would be owed a fee, even if they were not involved in introducing the buyer (i.e. the client introduced the buyer themselves).
What’s the difference between Sole Agency and Sole Selling Rights?
Sole Agency = Does NOT include private introductions (i.e. client introduces buyer direct).
Sole Selling Rights = Private introductions are included (i.e fee due even if agent didn’t find purchaser).
What are required in agency Terms of Engagement?
What do you include in your Terms of Engagement when selling a property?
The Terms of Engagement must contain:
Confirm Basis of Agency (Sole, Joint or Multiple)
Confirm Agents Rights (Sole selling rights)
Proposed Fee (I typically use 1% of the purchase price)
Any Expenses to be paid, marketing costs and disbursements.
Confirm no Conflict of Interest / personal interest.
Confirm AML checks to be undertaken
Timescale for the payment of fees (i.e. fee will be payable upon successful sale).
Make reference to Complaints Handling Procedure
–> These ToE MUST be signed and returned before marketing can begin.
What is the main legislation you have regard for when carrying out Agency work?
Can you name 3 or 4?
Estate Agents Act (1979) - the main one.
Consumer Protection Regulations (2008)
Misrepresentation Act (1967)
Extras;
Town & Country Planning Regulations (2007)
Bribery Act (2010)
When does the Estate Agents Act (1979) apply?
Disposal or Acquisition
Freehold Property
Leasehold Property
Land as well as buildings
What are the key principles within the Estate Agents Act (1979)? What are the key points and can you give me the main takeaways?
(COMMON QUESTION - TaylorMade book)
Agents must act with Honesty and Accuracy
Section 18 - Clear Terms of Engagement and clarity on basis of agency.
- All costs/fees must be specified in advance, in writing, in ToE.
- Sole, Joint or Multiple agency basis (clearly outlined).
Section 21 - Disclosure any Personal Interests.
- Disclose any ‘Connected Person’ who could benefit from the transaction.
EAA says you MUST report ALL offers recieved to the client (promptly and in writing).
EAA says you must not Discriminate against parties (ensure all have equal opportunity)
EAA says you must keep client’s money separate (separate named bank account with the word ‘client’).
