Still thumbs down

Professor Lorne Crerar makes an admirable attempt to promote the merits of the single survey in the September edition of the Journal (page 46). It is difficult to avoid the conclusion that he “protesteth too much”. Furthermore, in seeking to defend the indefensible, there seems to be a rather cavalier dismissal of the commercial realities which will prevail under the proposed scheme, together with an almost zealous expectation that all the attendant difficulties will simply dissipate with the passage of time. If Professor Crerar’s view is being proffered to the Housing Improvement Task Force as representative of the profession, it is clearly a distortion of the widely held apprehensions of many (nearly all?) of its members.

However laudable the objectives, the single survey will not work. Worse still, any apparent shortcomings in the widely acclaimed current system (shortcomings which are clearly manageable with sound advice) will be supplanted by a whole range of new and more serious problems.

Vested interests

Agents will not support the single survey because of the inherent difficulties in a seller instructing a survey (via his agents) to be relied on by a purchaser. Trust me, they will not rely on it! How could their interests be any more diverse? Quite apart from the very real legal issues (and it is certain that there will be a challenge to the “contract” which purports to regulate the surveyor’s liability), there is the fundamental problem of perception on the part of the buyer (and his professional adviser). We all know how certain firms entrust volume business to certain surveyors. It is inevitable that surveyors (however tacitly or subconsciously) will amplify the values of particular properties when clearly there is a vested interest in continuing the flow of business. It will happen – we all know it, the public know it, and that very worry undermines the efficacy of and confidence in the whole idea of the single survey. Just look at the practice of audit in the accountancy profession – we have all seen the recent disasters which have resulted. Bear in mind also that there will be largely unregulated non-solicitor estate agents instructing surveys from firms in which they themselves have a financial interest.

Unresolved conflict

As solicitors, we are all familiar with the phrase “conflict of interest”, and of course we are enjoined by our professional body to decline to act in any situation where such a conflict has arisen, or might reasonably arise. The Law Society of Scotland has zealously, and properly, introduced strict guidelines which we all require to adhere to – often, of course, to our financial disadvantage but, more importantly, to ensure that the public have utter confidence in the impartiality of our advice. How perverse then for us to be saddled with the prospect of a single survey. For most of us, moving home or investing in property is the largest single financial transaction of our lives and the very prospect of a single survey flies in the face of the independent advice that the public are entitled to expect. The buyer wants to pay as little as possible and the seller wishes to extract as much as possible. How can a surveyor instructed by the seller reconcile these competing interests? At present, any surveyor looking at the same property for both buyer and seller will arrive at different valuations for each. There is a fundamental and inherent conflict which cannot simply be fudged to meet the whims of the Scottish Executive.

Calculating the cost

The pilot scheme has already provided evidence that purchasers will not pick up the cost – they will reduce their price by the cost of the survey. And the cost of the single survey will, according to the RICS (and who is better placed to estimate the cost?) be between £500 and £700. Such a cost is, in my view, entirely legitimate given the nature and extent of the survey, the risks involved, the multiple liability that could ensue and of course the various vested pressures being brought to bear on the surveyor. It is invidious of Professor Crerar on the one hand to expect a comprehensive, watertight single survey to be made available to all potential purchasers, and on the other to advocate that the public should not have to pay a proper, entirely justifiable fee. A first class service at a negligible cost – where have we heard all this before? Even then, two types of single survey are being contemplated, one with and one without a latent defects guarantee – a recipe for confusion and misunderstanding if ever there was one.

It is also a fallacy to suggest that the consumer will be better off. Most buyers are also sellers. £500-700 on a single survey represents four or five scheme 1 valuations and two or three scheme 2 reports. Properly advised, very few clients pay those sums currently. Indeed, for Professor Crerar to suggest that the public will happily pay £300-400 for a single survey is almost risible.

Market behaviour

Quite apart from the obvious disadvantages of the single survey, Professors Crerar’s article was also misleading in several respects.

1. To say that the Law Society publicly supported the principle of the single survey is disingenuous. Anyone who was close to the process, or who took part in the discussions with the Scottish Executive, knows that the Executive was simply not prepared to listen to any opposing views. It was made clear at the outset that there would be a single survey and all discussion has centred on the process, not the concept itself. It was a fait accompli. These were bully-boy tactics of the worst kind (not unlike those being visited on the dental profession) and, as any dissenting HITF member knows, informed opposition was simply not entertained. Consumerism gone absolutely mad.

2. More information is not always better. Look at the financial services industry and the morass of paperwork which the FSA now supervises. If you speak to any IFA, they will tell you that the more information sent out to the client, the less likely many clients are to read it. It is a fact. They will rely on the advice of trusted advisers with proven track records who have their interests at heart. If you send a 25 page survey report, it will remain largely unread in most cases.

3. Low upset prices will still prevail in certain markets. When markets advance as quickly and acutely as they have done recently, properties will still sell for more than 30% over valuation.  There is nothing in the single survey that will prevent this. The market will prevail – it always does.

4. The single survey is clearly anti-competitive. Of course it is. The choice of the surveyor is limited to the seller. The surveyor may have a vested interest. If the purchaser wants to discuss an issue in the report he must refer it to another surveyor (and at a cost)! How could it be any more anti-competitive? Furthermore, insurance premiums for surveyors will rocket and choice will become even more limited. In due course that choice will be dictated by large financial institutions. This of course is what the Executive wants, not unlike the position that the UK Government is trying to fashion the financial services industry into. Large institutions equal greater protection for the public, the argument goes. All this, of course, is misconceived – just look at Enron, Equitable Life etc etc.

5. Judging by the pilot scheme, there is no public appetite for the single survey whatsoever. Furthermore, it is difficult not be sceptical about the market research to which Professor Crerar alludes. Those of us operating at the coalface know that the selling public do not want and, more importantly, will not pay for a survey which might or might not be used by a prospective buyer (the other forms of valuation/survey will of course still be available). Indeed, you do wonder how the questions were loaded in the market research. Was it made clear how expensive the single survey was likely to be? Was it pointed out that the seller could, in certain circumstances, be left to pick up the tab? And was it made known that the costs of the single survey would have to be found before a property could be placed on the market? By common consent, the pilot scheme was a disaster – reflecting the apprehensions and disdain held by both the public and the professions about the single survey. Moreover, you could be forgiven for wondering what the point of the pilot scheme was if the Executive was intent on simply bludgeoning on with this exercise without stopping to examine the results.

6. The reference to foreign jurisdictions is also dangerous and misleading. The role of solicitors and surveyors (or their equivalent) differs markedly in other jurisdictions. This reflects the differences in culture and attitude to heritable property in other systems of law. In France, for example, the notaire draws up the contract for both parties after the estate agents have agreed terms. The notaire does not provide independent legal advice to the purchaser or the seller and owes his primary duty to the state. The cost is in the region of 9% of the value of the transaction (including registration fees and taxes). Estate agency commission is frequently 5% of the sale price achieved. A survey is, apparently, virtually unknown and lending institutions will not lend more than 75% of the price of a property. On the other hand, lending institutions have a statutory obligation to ensure that a loan is affordable by the borrower. To draw comparisons with such jurisdictions is not helpful, particularly when our system itself has long been lauded.

7. Was the HITF report signed off by all of its members? I doubt it. Professor Crerar’s article was rather circumspect in this regard and I would be surprised indeed if consensus was reached on all the main issues promoted by him. If the HITF was not wholly in agreement, this speaks volumes.

And if it’s wrong?

Consider also the implications of the Property Misdescriptions Act 1991. If the single survey is to be distributed with sale particulars, does the survey then become the responsibility of the solicitor/estate agent? At present, any statements contained within a schedule of particulars are subject to the strict liability introduced by that Act, whether or not the particular representation emanated from the client and even if the sale particulars had been specifically approved by the client. The logical extension of this argument is that the same considerations will apply to a single survey. Are solicitors therefore to be responsible for statements contained within it? Are surveyors, for their part, potentially liable to solicitors/estate agents as well as potential purchasers? Is there to be a contract between the various parties to regulate this liability as well? The costs of such exposure will inevitably be passed on to the client. And, if none of those scenarios is to apply, if does rather drive a coach and horses through the Act itself.

The single survey is not the answer. It is ill-conceived and poorly presented. It will create problems, undermine the widespread confidence in our existing system and limit consumer choice. Our system is not perfect but it can be improved by some gentle tinkering – standard missives, information packs, greater transparency etc. The Executive needs to engage genuinely and honestly with the Society, RICS and CML and actually listen to what is being said. The single survey is simply macho posturing, no more and no less. As they say, if it ain’t broke…

Stuart Bain is a partner in andersonbain & Co, Aberdeen