Case Study

Question 1

How did you act ethically?

Answer 1

• I took detailed instructions and converted that to signed terms of engagement including fees and when they would be due.
• I ensured I was competent and not conflicted on the property
• I was honest and transparent with the client and with interested parties throughout.
• I gave reasoned advice based on what I felt to be in my clients best interests.

Question 2

When you instructed, did you feel competent to undertake the case?

Answer 2

Yes, I knew the area and the property. I felt confident with purchase and sale, i knew I had the support of colleagues.

I suspected that we might end up in auction and this was my first auction property so I was very careful to seek and observe advice from a senior partner in the firm (auctioneer).

Question 3

How do you undertake anti-money laundering and conflicts of interest checks?

Answer 3

Photographic id and utility bill as proof of address.
I checked our online CRM and also with colleagues in the firm for conflict check. I also checked that he owned the property by downloading the title documents.

Question 4

What were the terms of the sub-lease?

Answer 4

The landlord is entitled to possession of the building under the Superior lease. ie subservient.

Annual rent
Up to September 2021 - £6,300
Up to September 2025 - £7,000
Up to September 2027 - £7,560

Breaks in September 24 and 27

Lease of September 2020 but lease dated July 2023

Question 5

Give me an example of one of the headlines in your terms of engagement and a brief description as to why it’s there.

Answer 5

Bases of agency - sole selling rights. To ensure there is mutual understanding about the work we are doing and the circumstances in which we will earn a fee. Specifically on the sale of the property irrespective of where the introduction comes from.

Question 6

Tell me about your pre-inspection checks.

Answer 6

Clear instructions from the client
Checks with sitting tenant
Planning and floor plans
Research on occupier
Use
Lease summary
Comparable evidence
EPC
Listed status

Question 7

Do auction packs have to comply with any legislation?

Answer 7

• Bribery Act 2010
• Equality Act 2010
• Estate Agents Act 1979
• CPR and BPR
• The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer)
  Regulations 2017.

Question 8

What legislation relates to selling property at auction?

Answer 8

Auctions (Bidding Agreements) Acts 1929 & 1969:
These acts make it a criminal offence for parties involved in an auction to enter into agreements to refrain from bidding or drive up the price artificially. The auction process should be fair and transparent for all bidders.

Question 9

What did you include within your note taking when on inspection.

Answer 9

I tend to take a floor plan and my notes center on that. I annotate it with measurements and observations both internal and external. I am always sure take a lot of photos to supplement my notes.
Notable things:
Construction
Good Condition external and internal.
return frontage
Parking
Separate rear access upstairs if required.
First floor occupier, seemed in harmony with ground floor.
Some historic damage on the 2nd floor which appeared to have been caused by water ingress.
Great open plan retail space on GF

Question 10

When you inspected what guidance note did you do it in accordance with?

Answer 10

Technical Due Diligence of Commercial Property 2023
VPS 2

Question 11

Is there any RICS documents on inspection?

Answer 11

Technical due diligence of commercial property 1st edition 2020
Also Red Book has a complete section on inspection.

Question 12

Is this a professional standard?

Answer 12

TDD became a professional standard in 2023

Question 13

How did you measure the property?

Answer 13

Using a laser and annoting plans

Question 14

Was this measurement based on NIA or IMPS?

Answer 14

NIA because it is retail space

Question 15

Why was the kitchen area half the value of the offices?

Answer 15

Small kitchen, ancillary to main commercial spaceserves no other realistic purpose, on the first floor,

Question 16

Were there any limitations on your inspection?

Answer 16

Very few limitations as the 2nd floor was in the attic of the property.
I couldn’t look under floor coverings or test services nor provide reliable advice on building pathology.

Question 17

How did you client take the opinion of auction over private treaty?

Answer 17

He was very receptive, generally it really appealed to him because it would mean a quicker more reliable completion.

If anything I had to make sure I had to really highlight the risks.

Question 18

Did you tell the client they had unrealistic expectations?

Answer 18

No, I advised that sometimes clients have unrealistic expectations about the prospects for sale at auction as a means of illustrating the risks.

Question 19

How do you ensure cash purchasers are able to access funds required in such a time tight schedule?

Answer 19

Check for proof of funds in a liquid asset that isnt subject to significant fluctuations in value.

Question 20

What made you advise that the sale of private treaty would be less than auction?

Answer 20

I advised that had we attempted to sell the property at auction and it failed to sell, it was unlikely we would achieve a better price than the guide through a private treaty sale subsequently.

Question 21

Tell me about the neighborhood.

Answer 21

Periphery of the commercial area in the town.
Surrounded mostly by houses.
Busy thoroughfare for traffic as well as people walking to town from the local car park.
Local area very affluent, high tourism, very low vacancy rate, generally improving rents.

Question 22

What do you mean when you say zoned?

Answer 22

I zoned the property for retail. Zoning involves measuring in 6.1m increments back from the frontage. Each increment or zone is worth half of the preceeding zone.

Question 23

Tell me about the measurements and how you got to ITZA.

Answer 23

I measured in 6.1m increments but the unit was entirely zone a.

In other circumstances I would classify zones a b and c and then apply a dividing rate to the space to produce the ITZA space and apply the market rate to determine rent.

Question 24

Talk me through your investment method.

Answer 24

Took NIA and zoned the space
Applied the market rate to the space to produced the rent.
Market rate based on comparable evidence of other lettings.
Made the adjustment to the best comparable.
Considered local yield comparables and made adjustments.
Applied a yeild to the term which reflected the tenants covenant and security of income.
Applied a reversionary yield which reflected the local market to produce market value.

Question 25

How would you approach change if the property was over rented?

Answer 25

I might consider hardcore and topslice which values the MR as the secure income and the top slice which represents the excess rent at a higher risk portion. Horizontal division of income rather than vertical.

Question 26

Did you feel the yield applied was appropriate?

Answer 26

Yes I felt it was fair but probably. I was very cautious of over egging it and creating a false expectation around value by applying to low a yield to the reversion. I felt confident that the auction process would flush out the best possible price and true market value.

Question 27

There is quite a large jump in the term and reversion yields, can you tell me why?

Answer 27

I felt the term represnented as secure income as property in the town could produce, given the tenant time to the break and their period trading and in occupation. This is why the 5% was so much lower than the 7% adopted for the reversion.

Question 28

Tell me about the advise you gave in relation to the EPC.

Answer 28

The property has an energy performance rating of C-57 valid until November 2028 so I didn’t provide any advice other than to say that it improved the attractiveness of the property.

Question 29

You mention the client wanted a quick sale, why was this?

Answer 29

I inferred that he had some significant financial pressures. I didnt pry too much on what this was, in retrospect I could have done.

Question 30

Was this not a red flag.

Answer 30

Yes that occurred to me. Someone wanting a quick sale is usually slightly alarming. However I had done checks on the person, including their ownership and identity. I spoke with the clients solicitor at length. He had been working with his solicitor for some time on preparing the property for sale. The quick sale therefore was as a result of a long period of preparing the property for sale.