Thin end of the wedge?

The aim of this article is to consider the Executive’s decision to legislate for the introduction of inter alia the single survey – see Housing (Scotland) Bill (Part 3) – in light of the unconvincing, and indeed damaging, results of the single survey pilot.

In an article entitled “The Single Survey Pilot: The Story So Far” in Greens Property Law Bulletin, 69, pp 1-3, I stressed that we would not know whether or not the housebuying/selling public would embrace the single survey until the concept was properly tested. That article was written in June 2004 prior to the launch of the pilot. Where do things stand now?

The position so far

The pilot is still technically running but for all intents and purposes is dead in the water as a result of the Scottish Executive’s decision to seek to introduce the concept by statute.

Only 74 single surveys (four since October 2004) have been carried out in the four pilot areas (Edinburgh North and Leith; Greater Dundee; Glasgow North and West; and the Inverness area). By anyone’s standards, this can hardly be described as a resounding success and it is simply not possible to assess the new proposed approach on such a paltry sample especially when the Executive set a target of 1,200 surveys being commissioned during the period of the pilot. What can be taken from these results?

First of all, it is fair to say that the single survey was launched in a seller’s market – hardly the best conditions in which to engage the hearts and minds of the selling public. The feedback gained by the Solicitors’ Property Centres and individual solicitors in all of the pilot areas, is that after having the single survey explained to them, virtually all sellers refused to participate, principally on the basis that their property would sell easily without bothering about the expense of a single survey. Many others cited no need since their property was a relatively new-build home. Others felt that the single survey was too costly (typical scale fee between £265 and £750 plus VAT) to be incurred up front in anticipation of recovering the cost from the successful purchaser. It was clearly the case that, from a seller’s point of view, there has been no real incentive to participate in the pilot. The interesting analysis would have been to see if there was any change in a market that is less buoyant than it was in 2004. That analysis will not now be undertaken.

Background: the Executive’s aim

Research carried out for the Executive’s Housing Improvement Task Force (www.scotland.gov.uk/hitf) found that approximately 90% of buyers relied on scheme 1 valuations as their sole source of information on house condition before deciding whether or not to make an offer to buy. Why is this? The simple answer is one of cost. Scheme 1 valuations are considerably cheaper than the much more detailed scheme 2 or home buyer’s report. As a result, it is the so-called “survey” of choice of the majority. It should be remembered however that these valuations were originally designed solely for use by lenders for mortgage valuation purposes and were never intended to be a report on the condition of a property. The growth of scheme 1 valuations has unfortunately resulted in many people equating them with a proper survey report. Some valuations contain more information on the property but, in essence, they are no more than an independent assessment of value for mortgage purposes and should be viewed as such. To be properly protected, purchasers should instruct their own independent report and valuation and many solicitors recommend a scheme 2 report as a matter of course. In an active market, however, cost can soon become a major issue if a prospective purchaser offers for and fails to get two or more properties. In Edinburgh, the market has responded to this concern by accepting offers “subject to survey”. In such circumstances, the preferred offeror will be given a short period of time, say 24/48 hours to purify the suspensive conditions. While this system appears to work at face value, it does not meet the Executive’s aim of ensuring that more information is available to the housebuying public at an earlier stage in proceedings. Put simply, if 10 people offer for a property “subject to survey”, only one person will ultimately have a survey (or indeed a mortgage valuation) carried out on the property. True, it saves money, but are all prospective purchasers really better informed?

Results of the pilot

There can be no doubt that the overwhelming majority of the housebuying/selling public in the four pilot areas were not interested in the single survey, and the comments recorded by the four Solicitors’ Property Centres support this conclusion. These comments were passed on to the Executive a number of months ago. The Society is concerned about the Executive’s decision to legislate in the face of such feedback. The following points are worthy of note, namely:

1. The Society supports the broad objectives of the Housing Improvement Task Force, namely:

• better information for the public;
• avoiding multiple surveys; and
• improving the quality of Scotland’s housing stock.

2. The Society has been involved in the single survey pilot from the beginning and has encouraged its members to support the pilot so that real data could be obtained and analysed. The Society is therefore disappointed that the Executive has decided to announce and press ahead with enabling legislation prior to the pilot being closed and the data analysed. It is questionable if the concept has been “robustly tested” – see recommendation 169 of the HITF report. The Society is concerned that this decision has effectively called into question the entire raison d’être of the lengthy consultation exercise to date.

3. The single survey was to be part of a proposed purchaser’s information pack, and legislation enabling one enables the other. There is limited information on the single survey, but there is little or no information about what the purchaser’s information pack should include. The bill provides that the information pack and, indeed, the single survey must be made available before the property is marketed. There is therefore a very real problem with the information going out of date, particularly if the market slows down. There are also unanswered questions such as whether the seller is to be legally responsible for the accuracy of information given in the information pack.

4. There remains an underlying conflict of interest where the seller instructs the single survey after choosing a surveyor and the purchaser has to rely on the report and pay for it. This confusion is magnified as a result of the prospective purchaser being unable to have dialogue with the surveyor who prepared the report. Inevitably this will result in multiple valuations – if not multiple surveys.

5. While supportive of the Executive’s broad aim of improving the quality of Scotland’s housing, the Society is unconvinced that the housing stock will be improved by the compulsory pre-sale single survey.

6. The pilot has shown that the idea of purchasers reimbursing sellers for the cost of the survey simply does not work. Most purchasers simply deduct the cost from their offer, thus ensuring that the seller pays.

7. If the seller has carried out repairs following a single survey, there is a concern that the standards may not be as high as they should, or that any problems are simply covered over. A latent defects guarantee in the single survey would offer protection.

What is to happen now?

Despite the failure of the pilot, the Society wishes to play a part in helping the Executive shape workable legislation for the benefit of the public and its professional membership alike. In particular, the Society is ready to assist in reviewing the terms of the regulatory provisions which will give content to the legislation and would offer views on whether the single survey should merely be a condition report or should incorporate a valuation. Indeed, the place of the single survey within the wider scope of a purchaser’s information pack also needs to be discussed. It is in the Society’s view unsatisfactory that such a fundamental change in the Scottish property system be introduced through as yet unseen secondary legislation.

All in all, there is an unfortunate air of inevitability about the Executive’s proposals. Of course the scheme may work better if there is a statutory obligation on sellers to provide a survey, but does that justify the concept?

It is suggested that on the evidence of the pilot alone, leaving aside a critical analysis of the underlying ideology, the single survey in its current form is not justified. Could a different (and possibly cheaper) form of survey not be introduced and made available to the housebuying public online for a fee? Does it really have to be a scheme 2/homebuyer’s report plus add-ons, or could something more radical in design and delivery not be introduced? This is the sort of concept that should perhaps have been trialled in the pilot and the Society would wish to see that explored further.

In the end of the day, however, while we as solicitors have a view on the proposed change to the private survey, we are not surveyors. While we obviously have an important view given our key role in the overall process, it is for the Royal Institution of Chartered Surveyors to seek to influence the Executive with regard to the single survey proposals. The survey is merely one aspect (albeit an important one) of the whole process. Of more importance to us should be the Executive’s proposals for the introduction of the purchaser’s information pack (see Part 3 of the draft Housing Bill and the report of the Housing Improvement Task Force). This proposal has potentially much further-reaching consequences for the practice of conveyancing and requires to be debated at length. Indeed, it ought arguably to have been the information pack that was tested in a pilot rather than the single survey which, in essence, is only one of a number of possible contents of the information pack. As yet, there is no consensus on those contents and the Society must continue its involvement in the Steering Group formed by the Executive to consider this important matter.

There is, I suggest, no alternative. We should acknowledge these proposals for what they are – both a wake-up call to the profession and a massive opportunity for those of us who are willing to adapt our working methods in light of the inevitability of impending legislation. The challenge must surely be to rise above the comfort zones created by the recent property bubble and offer such an improved and differentiated service to the public that unimaginative competition will not be a realistic challenge.

What do you intend to do?