Purchase and sale is an optional technical competency on the pathways Commercial real estate, Corporate real estate, Planning and development, Property finance and investment, and valuation.
The competency relates to the acquisition and disposal of property both on a freehold and leasehold basis, including investment property subject to leases. Candidates need to have an appreciation of different property markets and alternative uses, with the ability to advise on the highest value use and any planning or physical constraints.
At Level 2, candidates should have experience of dealing with acquisition or disposal transactions from start to finish. This will include reporting, marketing, and sales progression, as well as an appreciation of relevant RICS guidance, legislation and methods of sale.
At Level 3, candidates should have provided reasoned advice to clients on a variety of different purchase and sale instructions. This will have involved challenging negotiations, an appreciation of wider external factors, and the provision of strategic recommendations.
This article will take candidates through some of the key issues to consider when advising a client on a typical disposal instruction.
At all levels, candidates must be aware of the different types of interest in land that can be bought and sold. Section 1 of the Law of Property Act 1925 defines these as fee simple absolute in possession – that is, freehold – and term of years absolute – that is, leasehold. Furthermore, section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 requires that any contract for the sale of freehold land be in writing.
At the point of initial instruction, candidates need to check that they are sufficiently competent, knowledgeable and experienced to act, and that there are no conflicts of interest, as per the current edition of the Conflicts of interest RICS professional statement.
They must also ensure they comply with the Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020. This requires customer due diligence checks to be carried out on both parties to a sale. For further information, candidates can refer to the current edition of the Countering bribery, corruption, money laundering and terrorist financing RICS professional statement.
During the course of the instruction, candidates must also comply with the Consumer Protection from Unfair Trading Regulations 2008 and Business Protection from Misleading Marketing Regulations 2008. This requires candidates to treat consumers fairly and to avoid engaging in unfair commercial practices, such as providing false information in marketing material or not acting in good faith.
The Estate Agents Act 1979 relates to the disposal or acquisition of a freehold interest in land, or leasehold with capital value. Section 18 of the Act, in particular, requires clear terms of agency to be agreed with itemised costs or fees agreed in advance, in writing. Section 21 requires candidates to declare any personal interest in the marketing particulars and terms of engagement, or otherwise to decline to act if it is not possible to do so ethically.
Before commencing work on a disposal, candidates must therefore ensure that terms of engagement are agreed in writing with their client. This must include clarification of the agency basis: that is, whether it is a sole agency, with one agent; a joint sole agency, with two or more agents sharing a fee; or a multiple agency with several agents, where the successful one receives the entire fee.
Candidates must also set out their own agency rights, as per the Estate Agents (Provision of Information) Regulations 1991, defining a 'ready, willing and able purchaser'. They must also establish whether sole selling rights have been agreed. This means that a fee is paid during the period for which those rights last (as agreed between the parties), even if a purchaser is found by another agent or the client; this differs slightly from sole agency rights, where no fee is paid during the sole agency period if the client finds a purchaser.
"At all levels, candidates must be aware of the different types of interest in land that can be bought and sold"
After accepting a new instruction to sell a property, candidates will want to start preparing their desktop due diligence. They should ask their client for copies of any documentation held on file, including historic correspondence.
Candidates carrying out health and safety assessments should be informed by the current edition of the Surveying safely RICS guidance note and any considerations relating to COVID-19, for example maintaining social distancing and using appropriate personal protective equipment such as mask and gloves.
After inspecting and measuring the property, candidates will need to advise their client on sale price, marketing strategy and sale method. This will be a key issue for candidates to discuss at level 3.
There are four methods of sale, namely private treaty, informal tender, formal tender and auction. The choice of method will depend on the client's objectives and budget, the need for accountability, market conditions and timing requirements.
Private treaty is the most common method of sale, and candidates will be familiar with this as the typical approach used by residential estate agents to sell houses. The advantages of this method are that it is flexible, relatively inexpensive, confidential, and there is no obligation for the vendor to sell until contracts have exchanged. However, there can be difficulties over withdrawals and associated abortive costs, while there is no certainty over timings or pricing.
Formal tenders are relatively uncommon, being used primarily by public bodies to demonstrate accountability, and the process is generally costly. After a bid is accepted, contracts are immediately exchanged. No further negotiations take place after tender returns are received.
This is not the case for informal tenders, which are far more common, sometimes being used to draw a private treaty sale to a conclusion by inviting prospective buyers to submit best and final bids. Interested parties are asked to submit the required information by a certain date, and these returns are then opened in front of an independent witness. There is no obligation in an informal tender for the client to accept the highest or indeed any other bid, and either party can withdraw until exchange because the process is not legally binding.
Finally, auction sales tend to be used where a property is unique or cannot be priced accurately; for instance, when it is in poor repair, a quick sale is needed, there is high market demand, or there are serious defects. At auction, contracts are exchanged and a deposit paid when the gavel falls. Auction has advantages because it provides certainty over timing; however, it can reduce marketing exposure and is not confidential, while the purchaser cannot be selected and a failure to sell may lead to blighting of the property. This is where potential purchasers are aware that a property has not sold at auction, which may lead to a negative view of the property or perception that it is not an attractive opportunity to acquire.
Candidates will then need to produce marketing literature and consider installing a 'For sale' board, ensuring compliance with the Town & Country Planning (Control of Advertisements) (England) Regulations 2007.
To comply with the Misrepresentation Act 1967, candidates will also want to ensure that a disclaimer is included on the marketing particulars they produce, effectively stating that these have been produced in good faith and are believed to be correct.
Once potential purchasers express an interest in the property and viewings have been undertaken, for private treaty sales, candidates will enter into negotiations to agree the sale price and any conditions with the preferred purchaser, such as the sale being subject to corporate/company approval or finance. Candidates will want to see proof of funding at this stage to ensure that the purchase can proceed.
For formal or informal tenders, candidates will need to issue tender information and analyse returns. For auction sales, it is likely that the auctioneer will be instructed on a joint agency basis, and the candidate may need to liaise with them over pricing, for example.
The candidate's involvement continues after the memorandum of sale is agreed, as ensuring smooth progression through to exchange and completion is essential.
Exchange is when the parties are legally committed to the deal and a deposit is usually paid. Completion happens after this, although it can be simultaneous, and is when the contracts are signed.
Many deals fail to complete or become protracted because of internal approval processes cause delay. Careful liaison with all parties, including solicitors, will help to get the deal over the line.
Related competencies include: Ethics, Rules of Conduct and professionalism, Purchase and sale