Purchase and Sale

Question 1

What are the 4 main methods of sale?

Answer 1

Private treaty
Informal tender
Formal tender
Auction

Question 2

What factors should be considered when choosing a method of sale?

Answer 2

Client’s objectives
Public accountability
Current and likely future market conditions
Likely level of demand for the property
Timing requirements

Question 3

What is private treaty?

Answer 3

A bilateral agreement, privately negotiated between purchaser and seller. Most common method especially for residential.
Details of property often circulated with asking price and buyer submits an offer.

Question 4

Why are the advantages of Private Treaty?

Answer 4

Flexibility
The parties control the process and negotiate in their own time
Vendor not under obligation to sell
Confidential

Question 5

What are the disadvantages of private treaty?

Answer 5

Potential for gazumping and gazundering
Late decisions not to buy
Associated abortive costs

Question 6

What is gazumping and gazundering?

Answer 6

Gazumping is when another party has a higher offer accepted on a property that you are already in the process of purchasing.
Gazundering is when the seller has accepted an offer but the buyer lowers offer at last minute.

Question 7

What is informal tender?

Answer 7

Written offers are invited but the asking price is not stated and the vendor is not committed to accepting an offer.
Offers should be opened in front of client/third party

Question 8

What should be included in a informal tender letter?

Answer 8

Required date to receive offer
Solicitor details
Finance arrangements
Details of any conditions
That the vendor has right not to accept highest, bets or any bid.
Escalator bids not accepted

Question 9

What are advantages of informal tender?

Answer 9

Not obliged to accept offer and negotiations can continue after.
More flexible than formal tender
Can choose option based on quality of bid, not just price.

Question 10

When should informal tender be used?

Answer 10

Good interest in the property
When price is not the sole consideration.
Sensitive sites
Competing developers

Question 11

What is formal tender?

Answer 11

Tender packs with detailed terms are sent out and bids are submitted blindly with no option to withdraw. Highest figure usually accepted unless stated otherwise.

Question 12

What are the disadvantages of informal tender?

Answer 12

More expensive the private treaty.
Buyer or seller can withdraw as not binding.

Question 13

What are the advantages of formal tender?

Answer 13

High level of accountability
Can lead directly to contract for sale
Moves quickly once bid accepted.

Question 14

What are the disadvantages of formal tender?

Answer 14

Expensive
Full marketing material and legal pack required from the start
No opportunity for purchaser to increase price
No opportunity to negotiate further after bids
Complex so rarely used

Question 15

When should formal tender be used?

Answer 15

Often by public bodies when to provide control and transparency
When high level of accountability is required
When there is strong interest in property

Question 16

What are the differences between formal and informal tender?

Answer 16

Formal has no opportunity for further negotiations
Formal higher accountability
Formal generally highest bid needs to be accepted
Formal requires detailed legal pack in advance
Cannot withdraw in formal without penalties.
Formal more onerous and expensive
Formal quicker once bid accepted

Question 17

What is auctioneering?

Answer 17

Property sold at auction without a fixed price. Property goes to highest bid.
Successful bidder is legally bound once to purchase once auction ends.
Needs to pay 10% deposit and complete on stated date, usually 4 weeks later.
Buyer needs to arrange surveys, finance etc prior to auction.

Question 18

What needs to be done prior to auction?

Answer 18

Seller
Terms of engagement agreed
Conflict of interest checks
Money Laundering checks
Full due diligence
All legal documentation available including conditions of sale, contracts prepared
Reserve price

Purchaser
Surveys and viewings
Legal advice
Due diligence
Deposit and financing arranged

Question 19

What are the advantages of auction?

Answer 19

Quick - contracts exchanged at fall of gavel
Certainty of sale if reserve met
Useful for unusual properties that are hard to value

Question 20

What are the disadvantages of sale by auction?

Answer 20

Cost of promotion and publicity
Lack of confidentiality
Vendor cannot choose purchaser
Intensive nature - lots to prepare and marketing

Question 21

What are the 3 types of agency?

Answer 21

1. Sole agency - 1 agent
2. Joint agency - 2 or more joint agents sharing fee on pre arranged basis
3. Multiple agency - a number of agents but only successful one gets fee.

Question 22

What checks and due diligence might you undertake on receipt of a sales instruction

Answer 22

Read lease
Environmental, planning, contamination details
Check tenant covenants
Enquiries to ensure no material detrimental to sale of property.

Question 23

What should you check on receipt of sales instruction as part of sales process?

Answer 23

Money laundering checks
Check competence
Conflict of interest
Due diligence
Check VAT Status of vendor

Question 24

What are some elements of the sales process on receipt of instruction?

Answer 24

Gather information including leases, title, plans, planning info
Inspect and measure property
Research market and assemble comps
Undertake valuation
Prepare report to vendor
Marketing
Negotiate sale
Instruct legals
Assist with any queries

Question 25

What must be set out in agency instruction agreements?

Answer 25

Agency basis (sole/joint/multiple) Agency rights Proposed fee Marketing costs Confirm no conflict of interest Money laundering regulation requirements Timescale for payment of fees Details of CHP

Question 26

What does sole selling rights mean?

Answer 26

It is the typical clause. Means that remuneration will be payable if contracts are exchanged in period when sole selling rights exist even if the purchaser is not found by the agent. Fee also due after sole selling rights ends if the purchaser was introduced by the firm during sole selling rights period.

Question 27

What is sole agency rights?

Answer 27

Means fee only due if the agent introduced the purchaser within term of the agreement. No fee due if client find purchaser.

Question 28

What is a ready able and willing purchaser clause?

Answer 28

Defined by Estate Agents Act 1979. Clause included so that if applicant is ready and able to proceed with purchase but client decides to withdraw, the agent may charge an abortive fee.

Question 29

What is a notice to complete?

Answer 29

In result of failure to complete a transaction, the vendor can serve Notice to Complete on purchaser giving them a deadline. Legal costs paid by purchaser. If deadline passes, vendor can remarket property. Deposit retained by vendor Vendor can sue for damages if property sold to another party for lower price.

Question 30

What actions might be undertaken when acquiring property?

Answer 30

Check competence Conflict of interest check Agree terms of engagement Understand client objectives Measurement and valuation Check planning Due diligence Negotiation Instruct solicitors

Question 31

What due diligence might you undertake for acquisitions?

Answer 31

Check planning use/conditions Asbestos Legal title Contamination Flooding Structural survey Tenant covenant check

Question 32

What is tenant covenant?

Answer 32

Refers to tenants ability to comply with terms outlined in lease. Financial stability, trading history (established), credit rating, assets, industry sector.

Question 33

What are forms of purchase vehicles?

Answer 33

Special Purchase Company - formed specifically to buy a property to reduce SDLT Offshore Trusts Real Estate Investment Funds - Listed on UK stock exchange, mostly in property investment Joint Venture between 2 parties.

Question 34

What are potential costs for purchasers?

Answer 34

SDLT, agent fees, legal fees

Question 35

Potential costs for sellers?

Answer 35

Marketing, agent fees, legal fees

Question 36

What happens at exchange?

Answer 36

Contracts exchanged and signed. Deposit paid.

Question 37

What happens at completion?

Answer 37

Transfer remaining monies, confirm receipt of funds, ownership is transferred and hand over keys.

Question 38

Checks to make if purchasing a property with existing tenant?

Answer 38

Lease details including rent reviews, breaks, alienation. Assess tenant covenant.