Ken Tyrrell: Receivers have a duty to get the best price in the market
Over the past few years, the sale of properties through receivership has become a lot more commonplace in the market. And while the market has an increased familiarity with receivership property sales, there are still always a few questions about how the process differs from a normal private sale.
Many buyers perceive a price discount solely because it's a receivership sale. There is a misconception that a receiver will sell at a reduced value simply because it is perceived to be a fire sale.
In fact, as a vendor, the receiver has a duty of care to obtain the best price in the market at the time of sale. It could be argued that it has a higher duty of care than many other vendors in the market.
We are noticing that the price gap has narrowed considerably between similar properties sold in receivership and by private vendors.
This is becoming more obvious on both individual residential properties and the low-to-mid end of the commercial market for properties which appeal to owner occupiers.
On commercial properties and larger residential block sales, purchasers generally have experienced advisors on hand doing the due diligence and who are generally more familiar with the receivership process, so it is not as much of an issue as single residential property sales.
If there is a discount, it will generally have more to do with an information deficit or reduced level of warranties given by a receiver as opposed to a private vendor.
This is the only fundamental reason for a discount and it is the receiver's duty to ensure any information or documentary gaps are closed or mitigated against.
In some instances, buyers express frustration with a receiver sale and argue that it can take longer and be a more difficult transaction than a normal private sale.
This is usually due to two reasons. Firstly, the receiver may not initially have all the documentation if the borrower is not cooperating with the process or was possibly never at hand.
In these circumstances, the receiver may need to take remedial action to bring the paperwork up to date, such as planning compliance, architect certificates, health and safety certificates, etc.
For purchasers, this can mean more extensive pre-signing diligence on their behalf. Most issues can be rectified but it may mean a slightly slower process. But this is not to say these issues don't also arise in a normal private sale!
Secondly, the receiver needs to be fully satisfied that the market has been tested and it is obtaining the best price possible.
This needs to be fully documented, with written professional advice from the sales agent.
Many private vendors will not have this duty of care obligation and hence may facilitate a slightly quicker sale. Off-market receivership sales are rare and will require an increased level of attention in order to meet best price criteria.
On the flip side, some purchasers now see a receivership sale as offering transparency and willingness to transact. In contrast, some private vendors may be testing the market or trying to achieve a price in excess of market value or a notional figure that they would be prepared to accept.
In cases where purchasers need to undertake extensive diligence on a potential purchase, it can be very frustrating to have a property pulled from the market for one of these reasons.
In contrast, the receiver will be seeking to obtain market value and will be a willing seller, but not at any price, and will be prepared to wait longer if offers are not satisfactory or at market value.
In addition, the receiver, by virtue of his obligations, will provide transparency and full disclosure on all known issues. When buying from a private vendor, there can sometimes be doubts or questions over the veracity of some problems or issues.
Although NAMA maintains a database of properties for sale, over which they have appointed a receiver, there is not yet a central database of properties for sale by all receivers.
Most receiverships over properties do not involve an appointment over a company and as such, there is no requirement to publicly disclose the appointment of such fixed-charge receivers.
So it is not possible to monitor the level of Irish fixed-charge receiverships.
Interestingly, a sales agent is not obliged to disclose that a property is being sold by a receiver, although most advertisements, particularly for larger properties, do declare receivership sales.
And if the buyer was not already aware of it, once their solicitor receives a draft sales contract from the receiver's solicitor it will be very clear at that stage that the vendor is a receiver, and the buyer's solicitor should advise accordingly.
With the ongoing deleveraging of banks in Ireland, the sale of properties by receivers is becoming more commonplace and the sales' process is becoming more streamlined, with a significant increase in buyers' knowledge and understanding of the differences against a private vendor sale.
As further properties in receivership are sold, the differential between a normal private sale and sale through receivership is likely to close further, particularly in the residential sector.
Ken Tyrrell is director of restructuring and insolvency practice at PwC