Are You Familiar With The Various Methods Of Selling & Buying Property?
Private Treaty
This is the process of selling an asset through a privately negotiated deal between a seller and buyer without recourse to an auction.
It is the traditional and most frequently used method of sale for houses, farms and most other property.
An experienced and qualified estate agent or Chartered Surveyor will assess the property's value and then advertise it on the open market with either an asking price or a guide price.
Potential buyers, or their buying agent, will then determine how much they are prepared to pay for the property, and negotiations will commence with the estate agent appointed by the seller.
Once an agreement is reached, the property will be deemed ‘Sold subject to Contract ‘. The agent acting for the seller will issue a Memorandum of Sale detailing all the details of the agreed terms for the sale, including the names of the seller, buyer, seller’s and buyer’s solicitor, the agreed purchase price, the amount of the deposit to be paid on exchange of contracts, the completion date, a list of any items included in the purchase price such as carpets, curtains, blinds and white goods. The Memorandum of Sale will be sent to the sellers, buyers and their respective solicitors.
The seller’s solicitor will then send out a contract of sale, the buyer’s solicitor will request searches of local authorities, and during this period, the buyers can arrange a building survey and other inspections such as a drainage survey.
At the same time, it is essential that the buyers ensure that all their funds to purchase the property are in place, either in their bank account or by obtaining a mortgage.
It is then incumbent on the buyer to transfer the deposit monies, usually 10% of the purchase price, to their solicitor to enable exchange of contracts to take place. At this stage when contracts have been exchanged between the solicitors, and only at this stage, does the sale and purchase become binding and neither party can withdraw.
Best & Final Offers
If during the marketing of the property it transpires that there is more than one interested purchaser prepared to pay an acceptable price for the purchase of the property the agent acting for the seller may request that a sale is finalised by inviting all interested parties to submit their ‘best and final offer for the property by a closing date and time. This is alternatively known as a sale by ‘sealed bids ‘.
The agent will set out the terms under which best and final offers should be made, including that offers should be for a set sum and not relate to any other offers, e.g. ‘ £1,000 more than any other offer ‘, whether the offer is a fully ‘cash’ offer or dependent on mortgage or other finance, whether the offer is conditional on a building survey report, to obtaining planning permission or any other conditions. It will also set out dates by which it is expected that both the exchange of contracts and completion will take place.
This is a good way for the seller to achieve the highest price for the property as frequently, the highest offer will be considerably more than the next highest offer. It is, however, an unfortunate way to purchase a property as the buyer has only one chance to make an offer, and it will have to be their ‘final and best ‘offer for the property. There will be no second chance to submit a later and higher offer.
Public Auction
This is now a less popular method of sale but is still used occasionally. It may be appropriate for particular properties, such as tumble-down cottages requiring complete renovation, or for the particular requirements of some property owners, e.g., an Executor sale, where there may be a number of beneficiaries of the sale, and it is necessary for the agent to not only obtain the best price but to be clearly seen to be getting the highest price.
Like a private treaty sale, the estate agent markets the property for a period of time, usually six to eight weeks. A pre-auction guide price is given, and then the property is offered for sale by public auction in a hotel or village hall.
The auctioneer invites bids from those interested in buying and can bid on behalf of the seller up to the reserve price. Once the reserve price has been reached, the auctioneer announces that the bidding “ is in the room “ and continues until only one interested buyer bids. The property is then offered three times to make it clear that it is about to be sold, and when the hammer falls, there is a binding contract between seller and buyer.
A 10% deposit is payable in the room, and the 90% balance will become payable on completion, usually one month after the auction.
The main advantage of selling a property at public auction is that the seller, on the fall of the hammer, has a binding contract. This avoids all the delays and problems that can cause a buyer to withdraw up to the point of exchange of contracts in a private treaty sale.
The advantage for the buyer is that they can clearly see the competition to purchase in the auction room. However, there are disadvantages for the buyer. If you intend to bid at an auction, you must set yourself a maximum figure that you are prepared to bid to prevent you from getting caught up in the auction atmosphere and overbidding for the property. You will need to undertake all due diligence prior to the auction, whether it covers all legal matters with your solicitor, arrange for a building survey to be carried out, and ensure that all the finances for the purchase are in place.
It is becoming increasingly common for estate agents to sell a property using an online auction as an alternative to holding an auction in a public place.
If you are considering buying a property that is being offered for sale by public auction, whether in a public place or an online auction, it may well be worth asking an experienced buying agent such as Recoco Property Search to act on your behalf. There are certain ‘tricks of the trade ‘in buying at auction, which an experienced buying agent will put in place on your behalf and may save you a lot of money.
Other Methods Of Selling Property
There are also other methods of selling property, such as a formal or informal tender.
Frequently, building land is offered for sale by informal tender, where the estate agent acting for the seller provides a pack of information and invites tenders to be submitted by closing date and time. Any offer that is accepted is still ‘ subject to contract, ‘ and either party can withdraw from the acceptance of an informal tender up to the exchange of contracts.
Formal tenders, where a closing date and time is set for receipt of formal tenders and where, if a tender is accepted by the seller, there is a binding exchange of contracts have fallen out of favour. They were frequently used in the sale of development land in the 1980s. Still, because of the amount of due diligence that prospective purchasers now have to undertake, especially with regard to challenging planning matters, they are now seldom used.
Conclusion
The sale and purchase of property have become more complicated, time-consuming, and frustrating for both sellers and buyers. It is undoubtedly well worth seeking professional advice on all aspects of the process, whether from solicitors, surveyors, estate agents, mortgage brokers, or buying agents.
Also, it is important to remember that the sale of property in Scotland is in many ways different from that in England and Wales, where both estate agents and some solicitors market and sell property. Different terms are adopted in the house-selling process, such as ‘qualified acceptance ‘and ‘exchange of missives. ‘You will need to take professional advice from those familiar with and experienced in selling and buying property in Scotland.
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