I really am *not* trying to be argumentative here - just alarmed at where the "line" can be drawn between the two possibilities.
I can see that if an asking price were, say, 100K and an offer of 90K were accepted with the valuation coming in at 90K, then - as you say - it wasn't a "discount" but just established the market price.
But what if the asking price were 100K, and someone offered 70K (cheekily - AIUI, it happens quite often!) and the valuation came in at
100K ? If the "soon-to-be" bankrupt accepts the offer, simply to spite his creditors, can the trustees set aside the sale?
I can (kind of) see your point, but I'm just trying to find out if there would ever be a chance that trustees could set aside a sale simply because the purchaser got a really good deal.
Is there no "dividing line" between a "standard" transaction and one "at an undervalue"?
Even if the purchaser got the house at *half* of the lowest valuation on the property, would you say that it is "standard" or "undervalue"? If I've got your position correct, because the purchaser is independent and the (extremely low) price was agreed by both sides, then it would be "standard". I'm just a little worried that someone could come along later and say "well, the bankrupt only agreed to the price, in order to spite the creditors" - and therefore invalidate the sale....
"Richard Miller" wrote
Would you recommend that a purchaser get something in writing to confirm this, if (say) they buy a house at 20% below a reasonable valuation?
Relax. Although there is no firm dividing line, i.e. every case will be judged on its own particulars, be aware that:
(1) asking price is not necessarily a reasonable guide to value,
(2) a formal valuation is not necessarily a reasonable guide to value either, because it is made on the assumption that a buyer willing to offer that amount can be found within a reasonable time, and so where there is a requirement for a quick sale one will usually expect to have to settle for much less. At auctions houses regularly sell for well below half "normal" market value [by which I don't mean that most auction sales are that cheap -far from it- but many are].
(3) Trustees or creditors cannot set anything aside, only the courts can, and they will need convincing. If you innocently acquire what you believe to be a genuine bargain, from someone of whom it cannot be expecteed that they are "doing you a favour" in return for which they'll want you to scrub their back at some point, it's extremely unlikely that you'll have anything to worry about, though it's your solicitor's job to make sure all the eyes are crossed and teas dotted, so you'll have some recourse from their insurers if they botch it up.
Adding to that, the eventual contract would typically consist of the specification for the item being sold and an offer to sell it at a price. To this would be added the acceptance of the price by the purchaser, and possibly any changes to the specification agreed during negotiations. There could be a counter-offer to buy at a different price, which might then be accepted by the seller.
It's not unusual for this to take several steps to achieve in negotiations, and then it would all be tidied up into one contract document at the end, agreed, initialled and signed by representatives of both or all parties, as appropriate.
If you are concerned about the possibility of a sale being set aside for these reasons, you can insure against it, or ask the vendor to insure against it.
problem solved - except you have to move if the house is taken off you.
So ... when people say contracts are "exchanged" just before the house sale completes, is there just *one* contract as you say, or *two* which are "exchanged"?? !!!
I wasn't talking about house purchase as such, but in principle the contract consists of an offer to sell and the acceptance of that offer. All the documents together constitute the contract, some taking precedence over the others. In a complicated contract, the order of precedence of the various documents is always specified, so that in a any case of conflict, the document with the lower precedent is ignored.
Not very good insurance, if you end up having to move, is it?
Surely the point of the insurance is pay off the vultures to the tune of the undervalue so that the setting aside doesn't happen. I suppose in theory the setting aside does first have to be ordered (to convince the insurance company that the claimants have a proven case) but the order is itself then set aside upon payment of the sum in dispute. Either that or the sale is simply repeated except at a more realistic price.
I haven't been to a property auction for more than a year now, but when I did go regularly, many lots went for surprisingly low prices, mostly mortgagee repossessions, or properties that were in some way at the lower end of the desirability spectrum, but would nevertheless have come high in any formal valuation. There were also many which went for more nearly-normal prices, of course. I only meant to imply that bargains are regularly in evidence, not that they were anywhere near accounting for the majority of lots sold.
That would surprise me, unless you're exaggerating like I was (but in the opposite direction). There may well be fewer bargains now, especially in areas where the "normal" market is so depressed that sellers are turning to auctions to get their houses shifted more quickly. But normal sellers don't normally go that way, because as a rule they'd rather wait a little longer and get more money.
They need to be pretty desperate to sell before offering a discount.
I am sorry if I put you on the defensive there. Particularly if you see my rather complimentary posting further back in this thread.
I suggest that 5% to 10% discount is about right at the moment for a decent property that is just going in the auction because someone wants a definite sale - for example executors. Discounts were a bit bigger in the early/mid-90s. For problem properties it is difficult to work out what is the ordinary auction discount and what is the reduction because of the problems.
I remember one property I was interested in that did not sell through the local agent for an asking price of 45k. They put it in the auction and it sold for 49k!
I just wanted to dispel the myth that auctions are a gold-mine where there are regular huge bargains for the insiders. The discount exists because of the disadvantage of having to get finance and any surveys organised before starting to bid and without any certainty of buying the lot. It's also boring as hell sitting through a long auction waiting for the few lots to come up that you are interested in!
Well, yes, it's difficult to talk about "discount" in this type of situation anyway. How do you attribute a fair open market value to a property which simply will not shift on the open market?
Not to you, I hope! That's just the luck of the draw. Yes, it does happen, especially when two parties are there who both really want it and keep outbidding each other until one of them sees sense.
And I wanted to reinforce the "myth". :-)
I can't agree with this at all. I'm in Scotland, you see, where you have to get finance and surveys organised before bidding even in the *normal* market. The only other difference with an auction is that you also have to organise insurance on the day.
nor indeed of selling it, if you set your reserve price too high. This is really the only reason for lower prices. Sellers restrict their market by shifting their property from the normal open market to the auction room, where they expect it to sell in 5 minutes instead of as many weeks or months, so they have to expect a lower price because there will be less demand.
Oh, I've always found it very entertaining watching the bidding, even though I had no intention of taking part myself. But the whole show tended only to last about an hour and a half. Much longer, and I might have nodded off myself...
You've lived in it since 1999. Did you acquire it at that time? If not, how and when did you acquire it and at what price?
Assuming you bought A in 1999 there woudl be no CGT on A. In fact you get a further 36 months grace on a property that has been your principle private residence (PPR).
Someone has already mentioned the other issue of shielding assets. If that is not a factor here, and there are no other complicating factors, then, assuming he moves in, your PPR becomes your brother's PPR. The sale price is not especially relevant for anything other than Stamp Duty. There may be some further implications if the property was NOT his PPR i.e. market value might be used for any later CGT calculations on his part because the transaction is between connected persons and by way of a bargain other than at arms length.
Stamp duty may still be involved regardless and you might be best advised to contact the Stamps Office in this regard.
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