Purchase & Sale Flashcards
What are the four principle methods of sale?
- Private treaty
- Informal Tender
- Formal Tender
- Auction
What factors would typically dictate the method of sale chosen?
- Client’s objectives
- Public accountability
- Timing requirements
- Current and likely future market dynamics
- Likely level of demand
What is your understanding of private treaty?
- A method of sale in which parties are free to negotiate without compulsion to buy in the open market
What are some of the advantages of private treaty?
- The parties have control over the process
- Flexibility
- No commitment to sell
- Confidentiality
What are some of the disadvantages of private treaty?
- Potential for gazumping and gazundering
- Potential for a purchaser to pull out, with associated abortive costs
Explain your understanding of informal treaty
- A method of sale used when a good level of interest has been shown in a property.
- The vendor’s agent invites interested parties to submit their best and final bid in accordance with a prescribed timescale, in writing
- The applicants would typically have to include the following information in their offer letters: the name/address of their solicitors, any conditionality relating to their offer (e.g. is it subject to planning etc.), confirmation of their financing arrangements.
- Important to remember that the vendor is under no obligation to accept the highest, best or any bid.
Explain your understanding of formal treaty
-Method of sale often used by charities and local authorities, due to the level of public accountability it holds
-Full marketing materials, including a comprehensive legal pack, must be provided in advance of the tender process
- applicants bid blindly in a prescribed form without knowing what other parties are bidding. There is no opportunity to change or increase bid
-In some instances, as soon as the best bid us selected, the banker’s draft is accepted and contracts are exchanged
- With formal treaty, the vendor can still reserve the right not to accept the highest, best or any bid, like an informal tender
What are some of the advantages of disposal via auction
- short timescale to exchange
- certainty of sale, assuming reserve price is met
- useful for disposing of unusual properties which are hard to value
What are some of the disadvantages of disposal via auction?
- short marketing period, which can also be costly
- you cannot select the purchaser
- lack of confidentiality regarding the purchase price
Talk me through the process of disposing of a property via auction
-Terms of engagement are agreed in writing between the auctioneer and the vendor
- The auctioneer conducts conflict checks and AML checks (of the vendor and all prospective purchasers)
- All relevant documentation relating to the property is published
- Clarity is agreed over the auctioneer’s right to refuse bids, the regulation of bidding increments and the different methods of bidding that will be accepted (online, phone etc.)
- General conditions of sale published by the auctioneer
- a reserve price is set
- contracts exchange on fall of gavel
- N.b. marketing particulars in the catalogue must be prepared in accordance with the Misrep. Act 1967 and the CPRs 2008
What must a purchaser do prior to an auction sale?
- Inspect the property and consider a structural survey
- complete full due diligence and get legal advice
- prepare a 10% deposit and insurance for exchange
- read the notice to prospective buyers
- provide ID for AML purposes
What are the main types of agency and briefly explain each
- Sole agency: only one agent
- Joint agency: two or more agents share a fee on a pre-agreed basis
- Multiple agency: any number of agents, but only the successful one gets the fee
Talk me through the timeline of a sales instruction
- Receive instruction from client and assess competence and independence, before issuing TOEs
- Complete AML checks and sanction checks
-Gather all relevant information relating to the property (e.g. leases, floorplans etc.) - Complete thorough due diligence (e.g. read leases, undertake covenant strength analysis, assess any legal, environmental, planning factors etc. which could impact the sale
- Inspect and measure the property, taking detailed notes and photographs
- confirm the vendor’s VAT position (i.e. is the property subject to TOGC) and their position on F&F
- compile and analyse comparable evidence and complete a valuation of the property (n.b. not red book)
- issue a marketing report to the client with all my recommendations
- obtain written consent for the contents of my marketing particulars from the client
- undertake the agreed marketing campaign
- negotiate sale, draft HOTs and instruct lawyers
- liaise with solicitors on CPSEs/any other legal formalities
- facilitate practical arrangements for completion
- issue invoice upon completion and retain file
What information do agents have a statutory obligation to disclose in TOEs?
- Basis of agency/agency rights
- Proposed fee
- Marketing costs/disbursements and proposed timeline for payment
- Money Laundering Protection regs.
-Details on the firm’s complaints handling procedure - Confirmation of no conflicts of interest
What are the differences between sole selling rights and sole agency rights?
- With sole selling rights, the agent will receive their fee if contracts are exchanged during the period in which they have sole selling rights, regardless of whether or not they found the buyer. They will also receive a fee if contracts exchange after this contractual period has elapsed if they found the buyer
- Will sole agency rights, the agent only receives the fee if they find the buyer
