Purchase, Sale & Auctioneering Flashcards
Learn: Timeline of a sales instruction
What are the 4 Methods of Sale ?
- Private Treaty
- Informal Tender
- Formal Tender
- Auction
What factors do you consider when choosing a method of sale ?
- Clients Objectives
- Public Accountability
- Current and likely future market conditions
- Likely level of demand for the property
- Timing requirements
Methods of Sale: What is a Private Treaty ?
- Parties are free to negotiate in their own time and without commitment in the open market (most popular method in UK. It is a private matter).
What are the advantages of Private Treaty ?
- Flexibility
- Parties control the process
- Vendor not under any obligation to sell
- Confidential
What are the disadvantages of Private Treaty ?
- The potential for gazumping or gazundering
- Late decisions not to buy
- Associated abortive costs
Methods of Sale: When do you use Informal Tender (Best Bids or Bids) ?
When there is a good level of interest in the property either from marketing or to bring negotiations to a conclusion.
Methods of Sale: Is the ‘best bids’ process legally binding ?
This is not legally binding upon parties, either party can withdraw at any point up to contract.
Methods of Sale: How should Informal Tender bids be opened ?
All bids should be opened in front of the client or independent witness/line manager.
Methods of Sale: Describe the process of calling for bids (Informal Tender)
The agent invites in writing all interested parties to submit their ‘best and final’ offer or ‘best bid’ in accordance with the set timescale. Within the letter should be;
- Date and Time offer should be in by
- Name and address of applicants solicitor
- Confirmation of finance arrangements
- Details of any conditions on the offer
- Confirmation that offers of a variable nature will not be considered
- the vendor reserves the right to accept any offer
Methods of Sale: When would you use Formal Tender (Sealed Bids) ?
Often used by a statutory body to give control and transparency over the marketing process
Methods of Sale: What must be included in the call for bids letter during informal tender ?
- Date and Time offer should be in by
- Name and address of applicants solicitor
- Confirmation of finance arrangements
- Details of any conditions on the offer
- Confirmation that offers of a variable nature will not be considered (e.g offering a % more than others).
- the vendor reserves the right to accept any offer (without this statement the informal best bids process could become a binding tender.
What should you remember about formal and informal tenders ?
“The Vendor is under no obligation to accept the highest, best or any bid.”
What materials must be provided during Formal Tender ?
Full marketing material, to include comprehensive 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
How should applicant bid during a Formal Tender ?
Blindly in a prescribed form without knowing what other parties are bidding
Differences between a formal tender and an informal tender: Formal tender (sealed bid)
- Provides a potential purchaser with a single chance to bid for a property
- High level of accountability
- Detailed terms/conditions for the sale [published in advance with offer to bid letter]
- There is no opportunity for a further bid
- The highest figure is accepted (unless the vendor reserves the right to refuse any or all offers accepted and not agree to take the highest bid)
- It is possible for the formal tender to lead directly to a contract for sale
Differences between a formal tender and an informal tender: Informal tender (best bid)
- can be used during private treaty negotiations to obtain a best offer from applicants
- Further negotiations can follow
- Usually less onerous terms/conditions prepared
- The informal tender will no lead direct to a contract for sale
- It is sometimes used as a negotiating mechanism to invite all parties to bid
- The vendor does usually state that they are under no obligation to accept the highest or any offer received
Summary: Formal Tender process..
Formal tender only then sale
Summary: Informal Tender process..
Private treaty then informal tender, perhaps more negotiations then sale
Auctioneering : Advantages ? (4)
- Achieving a relatively short timetable for property disposal
- Certainty of sale
- Useful method of sale for an unusual property which is hard to value
- Used for property which is likely to generate a strong level of interest
Auctioneering : Disadvantages ? (4)
- Cost of promotion and publicity
- Lack of confidentiality over achieved price
- Vendor cannot choose purchaser
- Intensive nature of a short marketing period
Auctioneering : The procedure
- Terms of engagement agreed in writing in advance
- Conflicts checked prior to accepting instruction
- AML checks for all vendors and proposed purchasers in advance
- Clarity on Auctioneers rights to refuse bids, to regulate bidding increments, to accept proxy, telephone, internet and postal bids and to sign the contract on behalf of the vendor
- Full DD completed prior to property sale
- All property documents available in advance
- General conditions of Sale, Memorandum of Sale and any noticed to bidders are to be published by auctioneer.
- A reserve price (below which the property will not be sold)
- Contracts exchanged as the fall of the gavel
- Auction particulars are in accordance with Consumer Protection Regulations 2008 and Misrepresentation Act 1967
- Insurance required by purchaser at point of exchange
Auctioneering: What actions are required by a purchaser before the sale day ?
- To view the property and consider structural survey
- Take proper legal advice and completed DD
- Read the Notice of Prospective Buyers
- Arrange a deposit of 10% & insurance for exchange
- Provide ID for money laundering procedures
What are the 3 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 get a fee
What is TOGC status ?
Transfer of a going concern (TOGC) is when a business, or part of a business, is sold and meets certain criteria which mean it is deemed to be a TOGC rather than a transfer of assets. In this scenario, no VAT applies to the value of the transaction, and it is ‘outside the scope’ of VAT
