Methods of Property Sale
The vast majority of property sales are undertaken by private treaty, although they may be sold by auction or tender.
Private Treaty
Private treaty involves selling between two individuals who negotiate with one another, usually through an estate agency. Once an agreement on price and other terms is reached, the agency normally contacts the legal advisers for the seller and the buyer to conclude the legal process. A mortgage application for the buyer may also be made. A buyer may also instruct an inspection of the property or may rely solely on the mortgage inspection. An inspection may occur before or after price negotiations and may, therefore, affect those negotiations.
The many stages between taking instruction and completing the sale often take a few months. There are no set deadlines for the stages and they may be extended if problems arise. Neither the buyer or the seller are certain of the sale until contracts are exchanged and re-negotiation can occur at any time up to exchange of contracts. In a private treaty sale, the offer and acceptance is only legally binding once formal contracts have been agreed, signed and exchanged bringing about both flexibility and uncertainty.
Gazumping is an example of a re-negotiation. This is where a seller accepts an offer from a buyer but, at a later date, the seller will not exchange contracts unless more money is paid. This normally happens in an active market with many buyers chasing few properties. On the other hand, a buyer may refuse to exchange contracts unless the price is reduced, called gazundering, more common in a slow market with few buyers and increased choice of property for sale.
Auction
Selling at auction has a set time period attached to it. An auction date may be set well in advance and therefore vulnerable to changes in market conditions. An auction may be suitable when: there is considerable competition for a property with a number of buyers expected to compete, when a seller must complete a sale within a prescribed time limit, or when a property is particularly difficult to value. No price needs to be provided to potential buyers although auctioneers often reveal a guide price and set a reserve price – the price below which they have been instructed not to sell.
When the hammer drops on a successful bid at auction the buyer is legally obligated to purchase the property. They must make all the necessary preparations prior to the auction including inspecting the property, arranging finance and making legal enquiries. Likewise the seller must make available legal documents, a legal contract and a local search prior to the auction, and allow for auction costs.
Tender
Tender requires a buyer to place one bid usually in writing. Tendering is useful when there is strong demand for a property and is often used by government departments and local authorities. As with auctions, some buyers may be put off at the prospect of wasted expenditure if they are unsuccessful.
A formal tender means the successful bidder, which may not necessarily be the highest bidder, is deemed to have exchanged contracts at the point the bid is accepted and may require a deposit. With an informal tender, the bid is not legally binding and there is a period of time to exchange contracts.
