Five Golden Rules of Investing

1. Always buy from motivated sellers
Instead of looking for a property you’ll like and then negotiating with the seller, a smarter strategy is to look for motivated sellers who will be flexible on the price and / or the terms of the sale, and then decide if you want to buy that particular property.

If they are prepared to sell at a discount for a quick sale, the amount of discount will vary depending on the motivation of the seller and the general market conditions.

In a rising market you may be happy with a 15% to 20% discount. In a falling market you would want a bigger discount of 25% to 40% to give you more of a safety buffer in case prices come down further.

Just to be clear here, this is not saying that you always need to get a discount off the sales price. Sometimes property is already a great buy at the full asking price because it may already have been lowered for a quick sale. This is where knowing the values in your local market is really important so that you can spot a good deal when you see it.

Many investors get fixated about buying below market value, which means they are likely to miss out on potentially profitable deals because they don’t think they should pay the full asking price. If it is a good deal, investors may sometimes pay the full asking price and more, especially if they can add value to the property. We also need to recognise that some sellers may not be able to offer you a discount because there is no equity in their property. However, if they are motivated, they may be more flexible on the terms of the sale, for example, when you actually pay for the property.

Price is not the only factor in negotiation. This means you may be able to use strategies such as ‘Exchange Delayed with a Completion’, or ‘Purchase Lease Option’. These strategies only really work if the seller is motivated.

2. Buy in an area with strong rental demand
This is a very important rule. As a property investor your aim should be to buy an investment which will not only pay for itself, but also make a cash profit (positive cash flow) each month. There are running costs associated with owning a property, but the basic concept is that the rent you receive from your tenants more than covers all of the costs. If you have no tenants, you have no income, which means you have to cover the costs yourself. Your investment then becomes a liability, rather than an asset.

You need to accept that as a landlord you may occasionally have void periods on your property, which means no tenants, and so you need to meet the costs. You can dramatically reduce potential void periods by only ever buying property in an area with strong rental demand. You want to ensure that if your current tenants decide to leave the property you can quickly and easily rent it to new tenants at the full market rent.

A general rule of thumb is to buy properties in areas with strong local employment and good transport links with local facilities and amenities. When you know how to do it, you can easily assess the true rental demand in any area by using the internet to find like comparisons, speaking to local letting agents, and even placing dummy adverts to test rental demand. If you are not sure about the rental demand in an area, then don’t buy the property to avoid longer than expected void periods, which will cost you money. Due diligence is very important before you make any investment decisions.

3. Buy for cash flow
As already mentioned in Rule No 2, your property should create a monthly positive cash flow for you, so that it is an asset rather than a liability. As prices shot up towards the end of the last property boom, it became increasingly difficult to find properties that stacked up to give a positive cash flow. Many investors were buying properties which would only just “wash their face”, where the rent just about covered the monthly costs. Even worse, in the hope that prices would keep going up, some investors were buying properties that had negative cash flow, whereby the rent was not enough to cover the monthly costs. This meant that the owners had to subsidise the property each month, not a good position to be in, especially if you have a lot of properties like this.

When the property market crash came in 2008, many investors, both amateurs and professionals, owned properties that were worth less than they had purchased them for and were costing money each month just to hold them. In this situation, if you can afford to hold the property, you just need to sit back and wait for the market to recover. But if you can’t afford to continue subsidising it, and you are forced to sell, then that’s one of the ways you could lose money in property. Fortunately, the good news is that, with the benefit of hindsight, you can learn from other people’s past mistakes, so that you don’t have to make the same mistakes yourself.

You should only ever buy property where each month there is a profit from the rental income you receive after paying all of the expenses, including mortgage payments, insurance, repairs and management fees. Positive cash flow is king. Although we expect property prices to rise in the long-term, if you buy your investments ‘as if prices will never go up again’, you will be forced to buy only properties which give you great cash flow now. Extra cash flow will help you to build up a safety buffer, and help you cover potential rises in interest rates in the future.

4. Invest for the long-term buy and hold
Some investors like to buy and sell property to make a profit. This is a good strategy (in a rising market), however, each time you sell a property you will crystallise your profit and you will never make any more money from that particular property. Whereas, if you buy and hold, you can make money from the rental profit each month, as well as long-term capital growth. This way you work once and get paid forever by that property. The real profit in property is in buying and holding for the long-term to benefit from significant capital growth. The key here is being able to afford to hold it and this is why a positive cash flow is so important, so that you don’t have to subsidise ownership of the property. If you plan to hold for the long-term and your property is rented out creating a positive cash flow, you needn’t be concerned by short-term fluctuations in price.

If you do sell a property investors may suggest you reinvest some of the proceeds into another property that will give you a better return. To conclude, many believe it is best to hold property for the long-term. That is how you can become very wealthy and pass wealth on to future generations.

5. Have a cash buffer
Often you meet investors who had to sell their properties because they could not afford to hold them. A problem investors sometimes hear about is of properties occasionally getting damaged or just enduring wear and tear, making them difficult to rent. The landlord may not have the spare cash to make the necessary repairs and improvements and so the property remains void, which ends up costing the owner even more money. This becomes a vicious circle whereby the landlord can’t afford to make the improvements because he has no rent coming in, and can’t get any tenants because he can’t afford to make the improvements. These landlords often become motivated sellers.

The way to avoid this potential problem is to make sure you always have a cash buffer set aside to cover unexpected expenses. In reality, you can get insurance to cover most of the potential issues, including a tenant not paying the rent. However, the more insurance policies you have, the higher your costs and so the less cash flow you will have each month. Investors may recommend you have a cash buffer in place, which you can use if need be. This could be cash in your bank, a clear credit card, or some cash in someone else’s bank that you have agreed you can borrow if necessary. The size of this buffer depends on your personal level of risk. A few thousand pounds per property might be a good idea. This will help you avoid becoming a motivated seller yourself.

Property Investment Appraisal

What exactly does the ‘appraisal’ of property mean? There are two distinct applications in mind. By ‘appraise’ we could mean

a. To fix a price for (an asset);
b. To estimate the amount, or worth or value, of (an asset)

The first of these meanings implies what is known, in the UK, as the valuation process or, in the US, as the appraisal process: the estimation of market value or the prediction of the most likely selling price. There is now widespread acceptance of the international definition of market value set out in the valuation standard of the International Valuation Standards Committee, commonly known as ‘the White Book’ (IVSC, 2005), which is now in its seventh edition.

This definition is the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had acted knowledgeably, prudently and without compulsion.

Many nations also feel the need to have their own valuation standards, not least the UK, whose standards [maintained by the Royal Institution of Chartered Surveyors (RICS)] have been through a number of editions of what is commonly referred to as ‘the Red Book’. The latest edition (RICS, 2003) is the fifth and has adopted the aforementioned basic international definition.

There are even attempts to create regional standards (such as the European ‘Blue Book’, published by TEGOVA, The European Group of Valuers of Fixed Assets), and this has created some tension and rivalry between international, regional and national bodies, particularly in Europe.

However, there is now very little disagreement, if any, on the general wording of the market value definition, even if there are some differences in interpretation. These differences will continue to diminish as the property investment market becomes more and more international.

The second of the two meanings, the estimation of worth or value, is not necessarily market-based. Since 1995 this concept has been developed and institutionalised, having entered UK valuation standards in the 1990s as the ‘calculation of worth’, and now defined in the White Book under the term ‘investment value’.

The term ‘calculation of worth’ has now – happily – been dropped by the RICS in favour of the international definition.

The definition is as follows: the value of the property to a particular owner, investor or class of investor, for identified investment objectives. This subjective concept relates specific property to a specified investor, group of investors, or entity with identifiable investment objectives and/or criteria. This definition does appear to fudge a major issue, specifically whether worth or value is to an individual investor or to a group of investors. This has significant implications about how it might be assessed in practice, as the value to an individual and the value to a group may not be the same.

Individual investors are influenced by a set of criteria by which the value of an asset might be assessed. For example, their tax situation, the rate at which they can borrow, how much equity capital they have to spare, what adjoining assets they own and the strengths and weaknesses of their existing investment portfolio are all factors that may lead them to perceive value in a particular property.

Hence, while all investors may agree upon such important variables as the size of the asset being appraised, the cash-flow implications of the lease and the likelihood of achieving planning permission for a change of use, individual investors will always be subject to different motivations.

The distinction between value and worth can be important. Further, it is possible that a group of investors will use the same criteria and share the same characteristics, and would as a result attach a similar value to a property asset. Identifying the possible buyer group is very relevant to appraisal, which is therefore the process of identifying a mixture of objectively measured market variables and the prospective owner’s (or group of owners’) subjective estimates of other relevant factors.

We could use the term ‘appraisal’ to cover the process of estimating either market value (the prediction of the most likely selling price) or investment value (the estimation of worth to an individual or to a group of individuals).

We could therefore encourage the use of the term ‘market valuation’ or ‘valuation for pricing’ for the former, and we would prefer to use ‘investment value’ for the latter. We hope this will not cause too much confusion, but the possibility of confusion unfortunately exists, grounded in the fact that the development of property terminology has been influenced by the isolation of the property world from the securities markets.

There is no doubt regarding the meaning of valuation in the securities markets: it means the estimation of worth.

Pricing is a function that is carried out by buyers, sellers and market makers. The price of a particular company in the stock market is publicly quoted, and large numbers of identical shares in that company can be bought and sold. In property, however, there are no market makers.

The price at which a transaction will take place has to be influenced by an expert opinion – a ‘valuation’ – because there is both insufficient market evidence and insufficient homogeneity of product for traders to be able to fix prices. It is therefore to be expected that at any one time different views of worth will be held by different individuals and these differences will fuel market turnover.

In addition to the main concepts of market value and investment value, ‘sustainable value’ (mortgage lending value), a relatively new phenomenon used in the bank-lending process, has been developed in mainland Europe. It has found some favour, particularly within German banking systems, and the mortgage lending value basis has been adopted, along with market value, within the international banking regulatory process known as Basel.

The concept sustainable value has been subject to intense criticism, as of it does not conform to any recognised economic concept of value and the definition is virtually incomprehensible. The implications for investors can be damaging and may have had some impact on the German open-ended fund crisis of 2005/2006. But it is arguably of no merit and should be abandoned.

The stock (property) selection policies of both major and minor property investors often include an examination of the mismatch between estimates of market value and investment value in order to spot pricing anomalies, and any investor or advisor will benefit from a clear understanding of the difference between the market value of an asset and its worth to an investor or group of investors.

If there is a difference, is this evidence of poor-quality appraisal? It is widely believed that market valuations should primarily be accurate; that is, they should closely predict selling price.

Accuracy may therefore be a relevant and useful test of the quality of a market valuation. Investment valuations, on the other hand, should primarily be rational; they should be professional and expert reflections of a combination of objectively measured market variables and the prospective owner’s subjective estimates.

Factors involved in residential property valuation

The residential market is imperfect. There is no central market place as a result buyers and sellers are relatively uninformed and even their professional advisors, valuers and agents, only have a limited knowledge of what is available for sale and of what is happening in the market.

Every house, flat, bungalow or other unit of residential accommodation is unique in some respect. Even a pair of semidetached houses differ as between right-hand and left-hand units.

This makes the task of valuation much more difficult than in those markets where there are standard units or products such as stocks, shares, gold, apples and cars. It is further complicated by the fact that there is no acceptable unit of comparison.

Residential property can occasionally be compared on the basis of a price per m2 (or sq ft) of floor space, but issues such as the number of bedrooms, reception rooms, car spaces, circulation space, views and the like can all vary between properties of precisely the same floor area, thus making the total unit of accommodation the only acceptable unit of comparison.

In the past the market had seasonal fluctuations, with greater activity and steadier, possibly rising prices, in spring and early summer, a quiet period in August followed by a mini-spur in September. These seasonal movements are less pronounced today but can still be detected. They can be different in different parts of the country and significantly different between London and popular holiday areas such as the Lake District. They can be affected by significant changes in market forces such as a change in mortgage interest rates.

In addition to seasonal movements, there are cycles of under-supply and over-supply and other movements of a migratory nature such as the desire to balance proximity to work with proximity to the country, and leisure activities with travel time and cost.

In most markets increases in effective demand against a fixed supply will lead to an upward movement in price. The upward movement in price encourages suppliers to produce more and for more suppliers to enter that market. In the residential market the response to such a shift in demand is slow.

It is argued that planning controls impede the supply of land and hence the supply of new houses coming on to the market. Even without such controls there would be a delay caused by the inability of the house-building industry to raise productivity in the short run. It is difficult for the market to respond precisely to match an increase in demand in an area because land becomes available in sizeable chunks and house-builders tend to be market followers, not market creators. The result is that an increase in demand in an area may in time be followed by an over supply.

The valuer’s task is to interpret the state of the market in an area at a point in time. Currently the residential market in the UK is experiencing a period of continuing price growth which is seen to be a reflection of: people living longer, greater single occupation of property, migratory growth in population and increased demand by individuals and investment companies to acquire property on a ‘buy to let basis’. The residential sector has been identified by many, at least in the short term, as a safe place for capital.

Over a number of years changes in consumer preferences occur which can be incorporated in new home design but are more difficult to incorporate in the existing housing stock. These style changes can shift the demand and hence value patterns of an area and must be monitored. The upper end of the market can be particularly vulnerable to these changes of fashion.

Residential property has a fixed location and can only be enjoyed at that location. The enjoyment of a property will depend upon general environmental factors and specific local factors. In the case of owner-occupation, the market reflects the relationship between employment opportunities, communications, general facilities of an area and the environmental factors. Growth in economic activity, more jobs and better pay, tends to cause a rise in values because of the relatively fixed level of supply.

Analysis of the economic opportunities of an area is essential if house buyers are to make sound house purchase decisions. Current concerns of global warming may begin to affect values in areas identified as liable to increased flood risk, coastal areas at risk and greater concerns by discerning buyers for environmentally sound energy efficient homes.

Total home demand has to be translated into effective demand. Effective demand is a function of the national economy and gross national product. The valuer needs to know and to consider what is happening to base indicators such as the level of unemployment, the way employment is changing, current wage levels, and the propensity of the population to save and to invest in their own homes.

The reduction in employment during the early 1990s caused by cutbacks and closures led in some areas to reductions in value both in real terms and in money terms. Money in bricks and mortar will not always be safe.

The housing market and levels of home ownership are closely connected with the availability of credit. Effective desire can only be translated to effective demand through the availability of credit, largely in the form of funds for mortgage loans offered by the building societies, the banks and the insurance companies. Availability of, and the cost of, finance are socioeconomic elements in the market-place, as are the loan terms of such organisations. Lenders are very competitive but changes in lending policy can increase demand. Thus increases in income multipliers or joint income multipliers can increase the number of potential buyers or their potential price range.

Credit for house purchase offered by banks and building societies is dependent upon two factors: the security of the property offered against the loan, and the financial status of the borrower. Very simply, the more one earns the more one can borrow. Thus in a housing market where demand exceeds supply higher salaries and wages will provide purchasers with greater purchasing power: this balanced against the fixed supply leads to higher property prices through competition between buyers. The cost of buying, the interest payable on house purchase loans (mortgages), is outside the control of the banks and building societies in that to maintain a flow of savings to sustain a flow of loans they have to compete in the money market. As a result, mortgage interest rates can rise and fall with the world’s changing view of the British economy and with changes in the Bank of England’s base rate. Many mortgage interest rates are linked formally or informally to base rate. A rise in base rate will generally give rise to an increase in mortgage interest rates and a fall to a fall in interest rates.

The government can influence the economy, finance and hence the marketplace. Governments set minimum standards for new homes, through planning control, building, energy and health regulations. These standards affect costs, which influence developers’ attitudes as to feasibility and influence the volume of new houses in the market-place. EU regulations may also influence market forces. The requirement for a statement as to the energy rating of a property may impact on the value of low rated properties in the same way as energy ratings have led to the disappearance of most non A rated electrical goods.

The government can and has influenced the market in other ways, such as by encouraging public sector tenants to purchase their homes, by imposing rent control and protection on the private rented sector, and by changes in taxation.

The general level of values depends upon the general and area-specific levels of economic activity, community income and wealth; the existing quality and quantity of residential property in an area; the rate of addition to that stock; the point at which a local market happens to be in a particular cycle, and the underlying confidence that people within and outside a particular area have in the economic future and prosperity of that area.

The fixed location of property means that the nature of the neighbourhood and the immediate surrounding properties are crucial factors in terms of buyers’ attitudes and hence in determining a value for a property within the level of values for that area.

A number of factors affect the attitude of buyers. These factors in turn determine whether an area at a point in time is considered to be desirable with rising values, acceptable with stable values, or depressed with falling values. A similar house in each such area could have very different values.

People need property, in this context people need somewhere to live. The size and composition of the population is an indication of the number and possible size of houses required by that population. But the residential market is a local market so it is important to consider the population within a definable area and to know its composition and the extent to which it is changing. Is it an ageing population, is it growing or declining naturally and/ or by migration into or away from the area? Demand characteristics can change both across the country and within local areas. Over recent years developers have become niche operators, seeking to satisfy current demand.

Market analysis identifies the need for, say, starter homes, single-person homes, family homes, luxury homes, retirement homes, student villages. Market analysis will also identify preferences in terms of type of accommodation, design, materials, construction, internal layout and facilities.

The socio-economic composition of a neighbourhood has a major impact on values. A socially deprived or underprivileged area will display that fact in the deterioration of the urban fabric, including the deterioration in physical condition of homes. Deprived means depressed, which signifies low incomes, multiple occupations and low values.

In time, however, a combination of other factors, including the architectural and historic nature of an area, may draw in a wealthier class who will gentrify or reinstate the properties to their original condition and turn such an area into a high value area. Such movements are observable but not always predictable.

In a similar way areas historically noted for housing the wealthier owner-occupier may go into decline as large units or large plots become a financial burden and are sold for conversion and multiple letting. In time the same area may revert back to single family ownership or be substantially redeveloped for low-cost housing or high-value housing, depending upon the level and nature of demand at a point in time when redevelopment is seen as the proper solution for a declining neighbourhood.

The level of vandalism and crime are regrettably indicative of an area’s undesirability. Such changes are partly attitudinal and, like a disease, can spread very rapidly If a community senses that no one cares about an area, in particular the authorities, then the residents cease to care. The result is decline, which is immediately reflected in falling property values.

Active residents’ associations and neighbourhood watch committees show concern by the community for their neighbourhood which can stimulate pride in an area and lead to rising values. The market and market values are obvious reflections of social desirability.

The extremes of social deprivation and social well-being coincide with the extremes of values to be found within a defined geographic area. The residential valuer must be alert to the potential for change and be aware that within broadly defined residential groupings there will be pockets of properties which appear to defy logic but nevertheless maintain high values in areas of low values or areas of low values in an area dominated by high values.

Once a change in an area is signaled the value movement tends to be fairly fast as the new socio-economic group moves in to replace the higher or lower socio-economic group.

These social features are closely related to the income profile of the population and the underlying economic activity of that section of the population that predominates in a given residential area. This is further reflected in market activity. Properties in desirable areas change hands quickly, with a minimum of properties remaining vacant. Properties in declining areas tend to remain on the market for longer periods, tend to become vacant and remain vacant, deteriorate, shift to multiple occupation, and may finally be condemned.

Local politics are a reflection of and a response to these changing social and economic forces. The future of a neighbourhood can be affected by the strength of the community in political terms. Strong representation can produce improvements to schools, health and community services and dictate the attitude of the authorities to that area. Small changes on their own have little impact, but in combination can strengthen a neighbourhood. Thus the attention of the authorities to street cleaning, refuse collection, repair and maintenance of roads and footpaths, street furniture, local schools etc will all become part of the environmental picture which impacts upon buyers’ attitudes and hence on their willingness to commit themselves to a purchase at a particular price.

Physical and environmental factors help to define the neighbourhood. Those areas which are, in physical terms, well maintained and environmentally most attractive are those which are likely to become socially most desirable and hence in time occupied by the economically stronger. This tends to create a community with political strength which becomes protective and perpetuates the status of the area.

Natural and man-made features may provide the boundaries to identifiable residential areas. In some cases there may be a spill-over effect, with values declining gradually from high value areas to low-value areas. In other locations there can be pronounced changes in value either side of a building or road. Roads, particularly motorways and main commuter routes, railways, rivers, lakes, village greens, sports fields, parks may all act as boundaries.

Proximity to one or another may give rise to higher or lower relative values depending upon the desirability or otherwise of being close to such a feature. There are rarely any hard and fast rules about the behavioural attitude of the residential property market. This is because it is often the combination of many factors that creates good or bad in the eyes of the buyer. Some river locations are highly sought after, others far less so given the current increased awareness of flood risk.

Motorways and railways may act as boundaries but the combination of ease of access, visual intrusion and noise, together with other environmental factors, will determine whether they add to, or take away from value.

Soil, subsoil, natural drainage, probability of flooding, micro-climate, topography and aspect are all physical factors which historically may have determined the desirability of building in an area and may still today have an impact on values. Proximity to the right schools, shops, libraries, golf courses, country club, leisure facilities, may add to value.

But on the other hand, proximity to anything likely to cause a nuisance such as factories, sewage-works, football grounds, bingo halls, discotheques or anything that might give rise to rowdyism and general misbehaviour will tend to depress values.

Communications to the rest of the area, surrounding public open space, motorway linkages and places of employment are all very important location factors. So too, is the existing quality of development, road patterns and standard of property maintenance in determining the good, the bad and the indifferent areas of a defined residential market. Nor would it be a complete story without mentioning the importance of pressure groups in the form of conservationists, environmentalists, ecologists and politicians.

All of these have an impact on the market for residential property. Thus at a given point in time these various forces will have combined together to create a particular level and pattern of values in an area. A change in one or more of any of the forces or components mentioned will alter the supply of, or the demand for, all residential property; or for a sector of the market or just for one specific property; the result being an increase in supply or a decrease in demand or a decrease in supply or an increase in demand and a corresponding change in prices and hence in values. It would be rare indeed for only one force to be moving, so interpretation of cause and effect can be very complex. The general economic climate together with the quality of different residential areas creates a pattern of values for a defined market. Within that market the valuer must now consider the site-specific qualities of a house and its physical condition in order to assess its market value.

Valuing a residential property

The first aspects of a property to be considered by the layman are usually the location, the appearance and the physical condition. Where it is, what it looks like, its accommodation, services and condition are all important factors when considering value, but for the valuer the most important initial considerations are legal. This is because it is the legal title to property with all its encumbrances that is bought and sold. ‘Every man’s home is his castle’summarises most people’s aspirations for home ownership, to own something which is theirs and which is defensible against all-comers. In practice, the main line of defence is title; if the title is in any way limited, then solid walls may not prove to be the best defence.

In England and Wales the titles to be valued will either be freehold or leasehold, but it is also possible to own no more than an interest for life in a particular parcel of land.

The legal term for a freehold interest is fee simple absolute in possession. This just means that the whole estate, or any part of the estate can be transferred by the freeholder at any time, either during the owner’s lifetime or on their death by will or under the rules of intestacy.

A freeholder has the right to occupy and use the land, create lesser interests out of it such as long leases, periodic tenancies and life interests. In theory the Crown owns all of the land so a freehold interest is the closest that a person can come to absolute ownership of land. This is illustrated by the fact that if a freeholder dies without making a will and without any living relatives to inherit the land, then the title will revert to the Crown.

Although the freeholder has in theory absolute rights over the land, this ownership is secondary to other common law and statutory rights.

Civil and military aircraft can enter the airspace over a land, subject to limitations.

All gold, silver and coal belongs to the Crown who grant licences for the excavation of such minerals. Items of historic interest that are found on land may also belong to the Crown, but compensation can be paid to the owner of the land on which the items are discovered.

Ponds and lakes that fall within the boundary can be owned, but control and use of larger water bodies is strictly regulated. Ownership of river frontages may or may not include fishing rights and the riparian rights of others must be respected. Two other title restrictions require special mention.

First, on transfer of title it is possible for an owner to impose on a purchaser specific restrictions known as restrictive covenants. From a valuation viewpoint the most important are those covenants that restrict the use: development may be restricted to a specific number of houses, occupation restricted to family occupation, use may be restricted to public open space, and there may be restrictions on parking of caravans. These restrictions may remain enforceable for many years, but the right to enforce may be lost if the person enjoying the benefit of that covenant has permitted breaches to occur.

In other cases it may be necessary to apply to the Lands Tribunal under the Law of Property Act 1925 for the restrictions to be modified or discharged. Clearly such restrictions may hold values up where they help to maintain an environment, but they may also depress values where they prevent the land being used to its highest and best use in today’s market. Thus land suitable for building 10 houses may be restricted to one house by a covenant created in the 19th century.

Second, it was possible for a freehold title to be made subject to a rent charge. This entitled a party with no legal interest in the land to receive an annual payment. The Rent Charges Act 1977 prohibits the creation of new rent charges and contains provisions for the gradual extinguishment or voluntary redemption of such charges as currently exist (see Appendix IA). Rent charges will cease to exist from July 2037.

A freeholder is subject to the general laws of the land when it comes to determining what he can do with his land. There aver various acts that determine use of the land, such as the Town and Country Planning Acts, Environmental Protection Acts and the Building Regulations.

The police may also override the freeholder’s legal position to enter the property to enforce the law.

Freehold property also includes improvements to the land such as buildings and those things so attached to the land that they are held to be fixtures and so part of the land. The distinction between personal property that is movable and personal property which has been so attached to the land as to become a fixture is often very fine and has given rise to a branch of law known as the law of fixtures. In the residential market it has become the custom for questionable items to be listed as being included or excluded from the sale. The valuer will take the obvious fixtures into account in a valuation as they may add to the value of the property. Clearly an item such as a central heating boiler is a fixture, but it is less certain whether a built-in hob and oven in a kitchen will be classed as a fixture. When in doubt the valuer should make it clear in a valuation report which items have been included in the valuation of the property.

Until the passing of the Leasehold Reform Act in 1967 it was quite common practice for residential property to be sold on a leasehold basis and in the case of blocks of flats, house conversions, sheltered housing or whenever property management may be a major issue it is still common practice to sell on a leasehold basis with a share in a specifically created management company which owns the freehold.

In September 2004 a new form of land tenure was introduced. It is called commonhold and it is a way of owning freehold land. It is intended to be an alternative to the leasehold system for multi-owned, interdependent properties with common parts. Its most obvious application is to blocks of flats and apartments, but it could be used for developments of houses or mixed use buildings where there are communal areas. A commonhold association must be formed as a private company limited by guarantee. This owns the common parts and all individual unit owners are members of the association and so they can control those common parts. The individual unit owners will own the freehold of their unit.

A leasehold estate in property will be for a definite term. This is an important value factor.

Traditionally such leases in residential property have been for terms of 99 years or 999 years. But in addition to the covenant to pay rent there may be covenants to repair, insure, pay local taxes, to clean, to maintain grounds and gardens or to meet some or all such costs through a service charge levied by the landlord. In most instances these covenants impose a contractual requirement on the leaseholder to undertake everything that one would expect from a reasonable freehold owner of residential property. However, a freeholder has a choice of whether or not to paint the property, to clean the windows and to maintain the garden; the leaseholder will not necessarily have that choice. Further, the leaseholder may be specifically restricted in terms of the use and enjoyment of the property. There may be covenants about music after 11.30 pm, about hanging out clothes to dry, about erecting TV and radio aerials and satellite dishes and a requirement to obtain the freeholder’s consent for all alterations and for any sale (assignment) or further sub-leasing of the property. A licence fee may have to be paid to the freeholder whenever the freeholder’s consent is required under the terms of the lease.

A valuer when instructed to prepare a valuation must be satisfied by inspection and enquiry as to the nature of the title to be valued and any restrictions or other encumbrances that attach to the title. However, because of the time-limits imposed upon the valuer by many clients, valuations are often prepared on the basis of an unencumbered freehold or on the basis of minimum information relating to a lease. A valuer is valuing on the basis of information supplied and will naturally reserve the right to review that valuation if that information is subsequently found to be incorrect. Nevertheless valuers are trained to observe and should therefore account for the obvious, such as signposted public footpaths, unmade and un-adopted roads, shared driveways and shared areas in blocks of flats.

Buying to let? Some issues you may wish to consider

Property is great whether you’re looking for a steady supplement to your retirement income or a secure financial future. Most buy-to-let landlords want to become financially independent, and property is a proven investment strategy for achieving that goal. But after you sign your name on the dotted line and officially enter the world of owning rental property, you face some tough decisions. One of the very first concerns is who will handle the day-to-day management of your rental property. You have properties to let, rents to collect, tenant complaints to respond to and a whole host of property management issues to deal with. So you need to determine whether you have what it takes to manage your own buy-to-let property or whether you should employ a managing agent.

A great advantage to building wealth through property is the ability to use other people’s money – both for the initial purchase of the rental property and for the ongoing expenses. Although the availability of buy-to-let mortgages has suffered since the downturn, more lenders are re-entering this market, so choice is increasing all the time. You will need to raise a deposit and then borrow the rest of the money from a mortgage lender.

The deposit required for a buy-to-let mortgage tends to be higher than that needed for a residential mortgage, and is significantly higher since the downturn. Expect to pay at least 25 to 30 per cent of the purchase price for the best rates, although some lenders request as little as 15 per cent.

The ability to control significant property assets with only a relatively modest cash investment is one of the best reasons to invest in bricks and mortar. For example, you may have purchased a £100,000 buy-to-let property with a £20,000 cash deposit and a mortgage for the remaining £80,000. If the property’s value doubles in the next decade and you sell it for £200,000, you will have turned your £20,000 cash investment into a £100,000 profit. This is an example of capital appreciation, where you are able to earn a return not only on your cash investment but also on the entire value of the property.

Rental property also offers you the opportunity to pay off your mortgage using your tenant’s money. If you’ve been prudent in purchasing a well-located rental property in a stable area, you’ll have enough income to pay the interest on your mortgage, as well as all the expenses, maintenance and insurance.

Over time, your property should appreciate in value while your tenant is essentially paying all your expenses, including the interest on your mortgage.

Your lender and tenant aren’t the only ones who can help you with the purchase of your rental investment property. Even the government is willing to offer its money to help your cash flow and encourage more people to become landlords. In calculating your income tax obligations each year, the government allows buy-to-let landlords to offset their rental income against interest payments on their mortgage and certain expenses. For example, you can claim 10 per cent of the annual rent for wear and tear on fixtures and fittings in furnished properties.

Over time, rental income generally outstrips operating expenses. And after your tenants have finished paying your mortgage for you, you’ll suddenly find that you have a positive cash flow – in other words, you’re making a profit.

One of the first steps in determining whether to completely self-manage your rental property or delegate some or all of the duties to other people is to analyse your own skills and experience. Many very successful property owners find that they’re better suited to deal-making, so they leave the day-to-day management for someone else. This decision is a personal one, but you can make it more easily by thinking about some of the specifics of managing property. Property management requires basic skills, including marketing, accounting and people skills. You don’t need a university degree or a lot of experience to get started, and you’re sure to pick up all kinds of ideas on how to do things better along the way.

If you’re impatient or easily manipulated, you aren’t suited to being a property manager. Conveying a professional demeanour to your tenants is important. You want them to see you as someone who will take responsibility for the condition of the property. You must also insist that tenants live up to their part of the deal, pay their rent regularly and refrain from causing unreasonable damage to your property.

Good management leads to good financial results. Having tenants who pay on time, stay for several years and treat the property and their neighbours with respect is the key to profitable property management. But, like most things, it’s easier said than done. One of the greatest deterrents to financial independence through investing in rental property is the fear of management and dealing with tenants.

If you choose the wrong tenant or fail to address certain maintenance issues, your buy-to-let investment may turn into a costly nightmare. By doing your homework in advance, you can reduce those beginners’ mistakes. Experience is a great teacher – if you can afford the lessons. If you already own your own home, then you already have some basic knowledge about the ins and outs of owning and maintaining property. The question then becomes how to translate that knowledge into managing rental property.

As a landlord, you may choose to handle many responsibilities while delegating some of them to others. Look at your own set of skills to determine which items you should delegate. A contractor may be able to handle the maintenance of your rental property and garden more efficiently and effectively than you can.

The skills you need to successfully manage your own rental properties are different from the skills you need to handle your own property maintenance. Most buy-to-let landlords find that using trusted and reasonably priced contractors can be a valuable option in the long run.

Ultimately, you can delegate all the management activities to a professional managing agent. But hiring a managing agent doesn’t mean you’re off the hook. Depending on the arrangement you have with your agent, you may still oversee the big picture. Most agents need and seek the input of the property owner before they start so that they can develop a property management plan that meets the owner’s investment goals.

Keep in mind that no one else will ever manage your rental property like you will. After all, you’re more motivated than anyone else to watch out for your buy-to-let investment interests. Only you will work through the night painting your property for the new tenant moving in the next day. And who else would spend his annual leave looking through the local newspaper classifieds for creative ad ideas?

You may find that a managing agent can run the property more competently than you can. Many buy-to-let landlords possess the necessary skills and personality to efficiently and effectively manage their rental properties, but they have other skills or interests that are more financially rewarding or enjoyable. Hiring professionals and supervising them is often the best possible option.

Beware the internet-only buyer

If you were an estate agent, what would you do if a buyer wanted to make a purchase of a property without even seeing it?

You might commend yourself on the quality of brochures and website. Maybe the website has flash features that allow your users to see the interior of properties in a panoramic view, which in itself is a good thing because it means it cuts down on the number of initial viewings you have to do, if potential buyers can look at a property beforehand and not have to book an appointment to view it.

Technology has significantly improved our lives and sped up processes, and is an advantage that there is less time spent waiting, communication flows faster, and information is more accessible.

Take for example, the conveyancing process. In the days before the internet the conveyancer went about his business and if you wanted to know at which stage a house purchase was at, you’d have to keep ringing or pay a visit to the office. Now the conveyancer can log the stages that have been complete, and you can view a record of work on your mobile device. You don’t have to waste time or money calling the conveyancer, he or she doesn’t have to be distracted from his work, and it is a win-win situation.

Having technology and using it well is also a time saver. Nowadays it is easy to view the interior of properties, and a schematic of the property dimensions before actually setting foot in the property. It cuts out one layer of viewings both for the interested party and estate agent, and because any information about the property can be put online, such as whether it is a freehold or leasehold property, the ground rent, or any information on the vicinity – the estate agents are able to give as much information to buyers, which not only saves them from repeating the same facts over and over again, but also helps by filtering out uninterested buyers (for example, if the property was leasehold and the buyers wanted one with a share of the freehold) and diverting in potential buyers. In the latter case, for example, if a property is within the vicinity of a good school, putting up the information online would help draw in buyers with families.

In the examples above, we have written about the benefits of technology with reference to property sales, but the benefits are equally applicable to lettings. The use of technology accelerates the initial stages of a sales or letting for both an agent and a consumer and for an agent, the people that get in touch thereafter can be said to be considered serious parties. Nevertheless, no matter whether the property is for sale or for rent, there is no substitute for actual viewing somewhere down the line before signing on a purchase. Even people who buy off plan visit the site to acquire a feel for the actual place, one that cannot be obtained from the glitz and glamour of a website or sales brochure.

So it was slightly surprising, even suspicious, when a TPO member agent received emails from a overseas buyer in China, who wanted to make the full asking price on a property, but without having actually setting foot in it.
The estate agent was sought by emails  times. Each time the overseas “buyer” demonstrated an interest in offering the full asking price offer on a property. The TPO member agent asked for personal documentation and when they arrived by email the documents were found to contain a series of potentially destructive computer viruses. Thankfully the member agent had exercised caution and vigilance, and exercised good judgement in not getting swept away by the opportunity of making a quick sale.

The Property Ombudsman (TPO) has issued a warning to all estate and letting agents to act with caution, as fraudulent ‘buyers’ target agents with the latest computer virus scam. It is not entirely dissimilar to the ransomeware viruses that crippled the NHS a few months ago, and there are no limits to which fraudsters will not go to in order to hijack a computer, even to the point of nurturing a business relationship before going in for the kill.

What would you do if you received an unsolicited email from a stranger? Your first instinct may be to google them to see if they exist. But fraudsters will have already done so, and assumed the identity of someone to appear credible. It may be prudent to exercise caution in these dealings.

It is not known what impact the viruses could have had on the agent’s IT system if it had not been identified.

Gerry Fitzjohn, Board Chairman for TPO commented: “Fortunately in this case, the scam was identified and no company or customer details were compromised.  However, this is a reminder to all agents to be both cautious and vigilant. The importance of antivirus software is a given, but it is not a guarantee against computer viruses, so the best defence is also an educated user. If something seems too good to be true, it usually is. We would urge all agents to circulate this warning amongst staff.”

The UK’s quick house sale sector

On 18 April 2013, the OFT launched a market study looking at the UK’s quick house sale sector.

They wanted to find out whether this sector works well for consumers, whether any practices give cause for concern and, if so, how such practices should be remedied. They had also noted potential similarities with the sale and rent back sector and wanted to establish whether similar concerns arose.

Quick house sales can be beneficial to home sellers who want the certainty of selling their property relatively quickly, without trying to sell on the open market. There was concern, however, that some unfair trading practices may prevent home sellers from making informed choices when selling their home. In addition, there may be a disproportionate impact on vulnerable groups, such as those in financial difficulty who need to clear debts and/or avoid repossession, and older people.

Some trading practices may lead to sellers receiving not just a below market value price for their home, but a sum much lower than the amount the provider had led them to believe they would get.

Practices that gave rise to concern included:

•reducing the price offered at the last minute after the seller is financially committed to the transaction;

•making misleading claims about the value of the property or the level of discount to be applied to the sale;

•falsely claiming to be a cash buyer;

•unclear fee structures, for example, imposing an unexpected fee following an initial valuation, as a condition for progressing the service;

•inducing home sellers to enter into agreements that prevent them from selling to other buyers, with severe penalties for breach of contract.

The launch of the market study included a public request for information, seeking to hear from people with experience of this sector, including home sellers, providers, valuation experts, estate agents and debt advisors. They also carried out a survey of providers and held roundtables with providers and with a number of stakeholders. The information received helped them to build up a picture of the sector.

As part of their research they:

Analysed over 160 websites, for information about providers and to see their claims about the service they provide; and reviewed Companies House data, for company and officer information;

Considered 23 provider survey responses (out of 74 providers approached), and held a provider roundtable (attended by 13 companies), for more detailed information about providers and their practices, processes, business models and customer feedback;

Reviewed 111 public responses to their request for information, including 72 home seller complaints, plus follow-up telephone interviews with 20 complainants and analysis of other complaint data, to understand home sellers’ experiences and identify possible breaches of consumer protection law;

Engaged with stakeholders including government bodies, enforcers, consumer bodies and advice services, charities, professional standards organisations and trade bodies, for information that would inform their study;

Organised a roundtable workshop with consumer stakeholders to examine how the quick house sale process affects particular consumer groups and what good and bad business practice looks like;

and obtained HM Land Registry research, to provide data on properties bought and sold within a six month period, and conducted a survey of RICS surveyors, to help estimate the size of the quick house sale sector.

Quick house sale providers are businesses that offer to buy a property or find a third party buyer very quickly, but usually at a ‘below market value’ price.

The OFT have identified almost 120 such providers operating in the UK. It is hard to count them because some providers operate multiple websites. There are probably many more providers, particularly local ones advertising through the local media and by leaflet drops. Not all providers offer the same service:

•some buy properties direct from home sellers, either for resale or to let(when they do this, they refer to them in this report as ‘buyers’)

•some broker sales, that is they seek to introduce home sellers to third party buyers and may take steps around progressing a sale (when they do this, they refer to them in this report as ‘brokers’). Brokers can be instructed by either sellers or buyers, or both. When a prospective seller gives the go-ahead, a broker looks for a buyer from their list of investors, from quick house sale buyers and other contacts, or by advertising the property on the open market

•some identify home sellers and pass on details (or ‘leads’) to other quick house sale providers (they are sometimes called lead generators). Some providers buy some properties and broker the sale of others. Some lead generators may also sometimes broker.

How do providers profit from quick house sales?

•Most buyers try to resell the property as soon as they can for a higher price than the one they paid the home seller.

•Some buyers let out the property and receive a rental income (and sell later).

•Some brokers are paid a fee by the seller (like a traditional estate agent).

•Some brokers are paid a fee by the buyer.

•Some brokers agree a price with the seller and another price with the buyer, and receive the difference between the two prices.

•Lead generators receive a fee from the buyer or broker: a fee per lead (or batch of leads) and/or a referral fee if a deal goes through

From the upfront claims they make on their websites, most providers appear to be buyers.

However, from close examination of their websites and from what providers told us, they believe this may not be the case. Whether the provider is buying or brokering can have implications for both the speed of the sale and the discount on market value.

Brokers have less control over the purchase than buyers: they have to find a third party buyer, one who will pay at least the offer price, and one who can finance the deal quickly. There seems to be a greater risk that home sellers’ expectations might not be met. Home sellers should therefore seek extra assurances that brokers can deliver deals as promised before doing business with them.

Providers that fail to explain their services adequately to home sellers may be in breach of the Consumer Protection from Unfair Trading Regulations 2008 (CPRs) for misleading claims and/or omissions in particular. When providers broker, the OFT considers those activities are likely to involve estate agency work (as defined by the EAA), in which case they must comply with the requirements of the EAA and associated legislation.

The service on offer is one key feature to consider when looking at providers. Another is how the purchase will be paid for.

Quick house sale buyers or, in the case of brokers, third party buyers, may pay with cash funds that:

•are available immediately;
•will be freed up once another property is sold;
•will be raised from investors; or
•will be borrowed from a lender.

This too has possible implications for the speed of the service and the final offer price. A buyer with funds available immediately is likely to be in a better position to finalise a quick sale than one that needs to free up funds or secure finance. Problems with funding may cause both hold-ups and an attempt by the provider to renegotiate the sale price. Home sellers should ask questions to clarify whetherthe buyer can pay for the property and will have funds ready on time. Providers, to minimise the risk of a breach of the CPRs, should disclose how the buyer intends to pay for the property. Similarly, in order to minimise the risk of breaching estate agency legislation,brokers should not misrepresent the status of a prospective buyer, which would include their financial standing.

Lead generators are not really providers at all. They do not make deals with home sellers. They are themselves unlikely to be able to deliver either a speedy sale or a particular sale price because those things depend on buyers or brokers. They include them as ‘providers’ only because, from their upfront claims, they are currently hard to distinguish from buyers or brokers and will look like a provider to the home seller. What they actually do is an ancillary service. They attract interest from sellers and sell on the details to other providers.

Not all quick house sale buyers or brokers use lead generators, but some do. Lead generators must comply with the CPRstoo. Their claims, for example about their service, the speed of the quick sale, the offer price and the financial status of the buyer, must not mislead. Lead generators should also check whether they are engaging in any activities that fall within the definition of ‘estate agency work’ under the EAA. If they are, they will need to comply with the requirements of the EAA (and subordinate legislation) when they carry out those activities. If necessary, they should take independent legal advice on this matter.

Buying a property? Some information for buyers

Buying a property can be like navigating a minefield. Here is some information you should know when considering a purchase.

Access
If the agent holds the keys, agency staff should accompany those who are viewing and anyone else requiring access, unless the seller gives authorisation to the contrary.

Advice
An agent will offer appropriate advice, explanations and assistance to all regardless of age, race, religious belief, gender, sexuality, ethnicity, or disability.

However, bear in mind an agent’s duty of care is to his client.

Agency Agreement
Types of agreement the agent may offer:

Sole agency which means that if contracts are exchanged with someone who your agent has introduced to the purchase, the agent will be entitled to the fee.

Sole selling rights which means that if contracts are exchanged with someone who your agent has introduced or was introduced by another agent or with someone you yourself introduced during the agency period the agent will be entitled to a fee.

Multi agency which means that you have instructed a number of agents and agreed that the agent who introduces the buyer to the purchase will be the one who is entitled to the fee. Note that multi agency fees are generally higher than for a sole agency.

Ready, willing and able which means that if someone is demonstrably ready, willing and able to purchase your property (even if an exchange of contracts does not occur) then the agent will be entitled to a fee.

Ensure that you understand:

The fee that will be charged and whether it is based on a sliding scale or a fixed amount.

How long the agreement runs for; how you can terminate it and with what period of notice is required.

Whether you will have any continuing liability to the agent for a fee if you do terminate the agreement.

The options open to you regarding the preparation of the Energy Performance Certificate (who will supply it and the cost).

The arrangements for boards and whether the agent will accompany all viewings or is expecting you to conduct some or all of them.

In particular you should:

Understand that you when you sign the agreement you are entering into a legally binding contract under which you may be liable for fees.

Ensure that you have read and understood the terms of the agreement and the commitments you have entered into. Do not feel pressured into simply signing it and be aware that if you sign the document in your home or at your place of work you are entitled to cancel it within 14 days.

Make sure that you receive copies of all relevant documents such as the agreement, terms of business and the final sales particulars after you have approved them in draft form.

Associated Services
You are not required to use any associated service which is offered by the agent. You are entitled to use your own financial adviser, legal representative and surveyor. Refusal of additional services should not prejudice any offers or viewings made through the agent.

If the buyer accepts services offered though the agent, the agent must inform the seller in writing of those services.

Buying a Flat
When buying a flat the estate agent should provide you with information such as the level of services charges. Further information can be found in the TPO Code of Practice for Residential Estate Agents and here.

Duty of Care
An agent will always work in the best interests of their client, that is to say the person who is paying for the estate agency services (usually the seller). An agent should treat all those involved in the proposed sale or purchase fairly and with courtesy. If the agent or one of his staff has any personal or business interest in the property, this must be divulged as soon as possible in writing.

Energy Performance Certificate
The agent should advise the seller about his obligations to obtain an energy performance certificate, prior to marketing begining.

Buyers can ask to see the energy performance certificate for the property.

Fees and Charges
An agent must inform you in writing, before you agree to use his service, what fees (including VAT) are payable and when they are due. Fees must be clear and transparent.

Financial Checks
An agent will ask sellers to provide proof of identity, as required by the Money Laundering Regulations 2007. Buyers will be asked for similar information, along with details of their funding for the proposed purchase at the point an offer is made.

Illegal / Criminal Activity
Allegations of illegal and criminal activity (e.g. fraud) should be referred to the relevant authority (such as the police) or regulators (such as Trading Standards) who are empowered to undertake enforcement action. The Ombudsman does not have regulatory powers and cannot consider allegations of illegal or criminal activity.

The Legal Representation
A licensed conveyancer or solicitor and will progress the formalities of the sale and determine with you the potential dates for exchanging contracts and completion.

The Mortgage Provider
If you require a mortgage to buy the property you may be dealing with a bank or building society, either directly or through an adviser. The agent is not allowed by law to give you any financial advice but he might refer you to an adviser with which he has links or which is a separate part of the same company. The agent will not have access to the records of the mortgage provider or adviser and has no control over the progress of any mortgage application.

Marketing
The agent must describe the property as accurately as possible and not misrepresent the details.

Agents are legally bound under the Consumer Protection from Unfair Trading Regulations 2008 to describe a property truthfully and provide material information to allow potential buyers to make an informed transactional decision. Sales particulars should give a general description of the property and will highlight, for instance, the type of heating, double glazing installed, or appliances or furnishings that may be included in the sale. The agent will not have tested any facilities but if they are of particular importance to you it is wise to question the agent further and he can ascertain the relevant information from the seller on your behalf.

Negligence Claims
Negligence is a term with a legal meaning and only a court can decide if an agent’s actions or inactions were negligent. The Ombudsman cannot decide claims of negligence and cannot speculate on what a court may decide. Consumers should seek legal advice if they wish to pursue a negligence claim.

Offers
The agent must record all offers received and pass a written copy of the offer promptly to the seller. The agent must not conceal, misrepresent, withhold or delay communicating offers.

The agent should confirm your formal offer in writing to you and whether the seller has accepted that offer.

It is the seller who decides whether to accept an offer; to reject an offer; when to stop marketing the property after an offer has been made, and to whom to sell the property to and at what price. The agent can only guide the seller in this regard, it is not his decision. The agent is working for his client, the person selling the property.

Pre-Contract Deposits
As a general rule, estate agents should not take pre-contract deposits. However, in the case of new home sales, agents may take into account specific instructions from sellers. If a deposit is taken, then a written receipt must be given, and the circumstances under which the deposit is held and any interest accrued are refundable, must be clearly stated in writing. Unless the agent’s client has provided written authority, agents should not deduct any costs and charges from any client’s money. In Scotland, agents are not allowed to accept pre-contract deposits.

Role of the Estate Agent
He is instructed by the seller of the property but has a responsibility to treat any prospective buyer fairly.

The agent is required to act in the best interests of his client. The agent will ususally conduct a market appraisal, draft sales particulars, ensure an energy perfomance certificate is in place, agree a marketing strategy and undertake viewings, whilst receiving and passing on offers. The agent has no control over the legal process but will generally assist in checking on the progress of the purchase and, if agreed, in handing keys over on completion of the sale.

‘For Sale’ Boards
The agent must ask if the seller wants a ‘For Sale’ board to be displayed and ensure that only one board of the correct size is displayed for each property.

Boards must not be displayed in areas where they are not permitted.

Sale by Tender / Buyer Pays Fee
Sale by tender/buyer pays fee is an alternative commercial practice that has developed across the industry with a number of agencies employing it as a way of attracting business by offering sellers their agency services for reduced or zero cost fees. Under this approach the agent enters into an agreement with a seller to market a property whereby offers are submitted through a sealed bid/tender process.

Prospective buyers submit their offers to the agent having entered into an agreement to meet the agent’s fee liability which is over and above the agreed price for the property.

Sealed Bids
The process whereby the agent asks all potential buyers to make a ‘sealed’ offer to be received by a certain date and time. The agent will ‘open’ the offers at the designated time and advise the seller accordingly. The seller will then choose which offer to accept. The seller and the buyer retain the right to withdraw from the purchase thereafter.

Survey and Valuation
The surveyor or valuer will be engaged by the prospective buyer or their mortgage provider and will offer various types of surveys from a general valuation report to a structural survey. Unless the mortgage provider specifies otherwise it is the buyers choice as to the type of survey undertaken.

Terms of Business
All agents must give their clients written Terms of Business. The agent must clearly explain all fees and charges and tell you if any fee will be payable if you withdraw your instructions to sell the property.

Viewings
The agent must seek and act on the seller’s instructions about how viewings should be conducted.

Reasonable notice should be provided to the occupants of the property, prior to the viewing taking place.

If you can think of anything else we may have left out, leave a comment and let us know!