A better buy

In just over six months, on 1 December 2008, the home report will be part of the Scottish housing market, required by law.  It is one of a range of Scottish Government policies intended to improve the condition of private sector housing in Scotland.

For most people, buying a house is the biggest financial decision of their lives. I believe it is one that should be based on reliable and detailed information and I am confident that the home report will achieve this.

Under the current housebuying system, around 90% of buyers rely only on a mortgage valuation, the most basic inspection of a property. A few years ago, I was one of the 90% when I purchased a home. Before long I realised that essential repairs were needed, which cost me unplanned time and money – because I bought without enough information about the condition of my property. That experience is one that I do not want other buyers in Scotland to suffer, and it has brought alive the arguments and evidence that I have spent very many hours exploring since taking up my ministerial role.

The object: better information

Under the home report reforms, sellers will commission a single survey, containing detailed information on the property, prior to marketing their house for sale. A chartered surveyor will prepare the single survey, which will include a valuation and an energy report with details of the energy efficiency of the property and how it can be improved. The seller will also complete a property questionnaire about various other aspects of the house that will be of interest to buyers and to conveyancers.

The result will be that both buyers and sellers will have far better information at an early stage in the transaction process to help them to decide how to proceed. In my view it is at this early stage in the process that people are most alert to questions of value and condition. I want any potential owner to be armed with sound, professional information before deciding to submit an offer to buy.

In his article in the April edition of this Journal, “Homing in on Home Reports”, Graeme McCormick deplored the emotionally driven nature of many decisions to purchase. That is precisely the reason why the home report will bring benefits to the system. It provides information as early in the decision making process as possible, while keeping other, sound, parts of the system. I believe that the home report is a pragmatic step that as far as possible goes with the grain of the existing system.

Another example of that is the concept of the property questionnaire, which was suggested initially by a representative of the Law Society of Scotland on the Purchasers’ Information Advisory Group. Building on existing good practice, the property questionnaire will give prospective buyers a useful summary of key information and will assist in the conveyancing process.

Environmental groups have rightly welcomed the introduction of the energy report. It will provide buyers with information on the energy efficiency of any home they may be considering purchasing. It should result in greater demand for energy-efficient homes. And it will help people to plan how to reduce their fuel bills.

The accessibility information included in the single survey will help buyers with mobility problems and encourage buyers to think ahead about their household’s possible future needs – whether for access for prams, for wheelchairs or other reasons.

Misconceptions

I know there is still some confusion about the home report reforms. Let me address some of the most common misconceptions about the changes that will result from the introduction of the home report.

Offers subject to survey

One of the most common suggestions is that the main reason for introducing the single survey aspect of the home report is to remove the occurrence of multiple surveys in the market. On the contrary, the primary objective is to provide better information on the condition and value of houses to sellers and buyers before offers are submitted. It makes perfect sense for buyers to have quality, reliable information about what they are buying before they decide to offer. The offers “subject to survey” approach does not meet that objective.

Confusion with home information packs

There seems to be an assumption by some people that home information packs on the English model are being introduced in Scotland. This could not be further from the truth. The home report and home information packs have been devised for very different reasons. In Scotland, a home report will comprise a single survey with an energy report and a property questionnaire, but no “legal documents” such as building warrants or property searches. In England & Wales, a home information pack contains such legal documents, but no mandatory survey report. Information on energy efficiency is the only common element of the two systems.

The home report will not be phased in over a period of time as home information packs were in England & Wales. Instead, the new duties will apply to all properties marketed for sale from 1 December. This introduction date was chosen on advice from lenders and selling agents, as a time when the market will be relatively quiet and therefore to minimise any short term disruption during the transfer to the new system.

Lenders and single surveys

Despite repeated assurances by the Council of Mortgage Lenders (CML), some selling agents still assume that lenders will not accept a mortgage valuation derived from a single survey. The CML has worked closely with the Scottish Government and Royal Institution of Chartered Surveyors (RICS) to develop an approach that will provide the necessary information to lenders to assess mortgage applications. 

The CML has repeatedly said that it believes that lenders will usually accept a mortgage valuation in the lender’s format provided by a surveyor who has also prepared the single survey. The RICS has confirmed that the mortgage valuation will be covered by the fee for the single survey. However, the CML has always reserved the option for lenders to instruct an independent valuation, as they do under the current system, for example where there is a high loan to value ratio or the surveyor is not on the lender’s panel. 

Buyer’s trust

Buyers will have full reliance on the survey and will enjoy all the rights of redress against the surveyor that they do at present. The RICS has confidence in its ability to deliver. The surveying profession in Scotland has high professional standards and strict professional rules of conduct. A working group of RICS is currently developing the terms and conditions on which a chartered surveyor will provide the single survey. These will, among other things, make clear that the surveyor must take an independent view and will set out the rights of redress. These measures will ensure that buyers can trust the single survey.

Providers of single surveys

Nearly all surveys and valuations in Scotland are currently carried out by members of RICS, the only group of survey providers we know of that meets our criteria for suitable providers of the single survey. That is why the legislation says that only chartered surveyors registered with or authorised to practise by RICS can prepare single surveys. We are in discussion with organisations representing various other potential providers. If they or others wish their members to become single survey providers and can demonstrate that they meet the criteria, they can be added to the home report regulations in due course. The criteria are on our website at www.homereportscotland.gov.uk .

Home report costs

A market is developing for providers to organise the single survey and other elements of the home report package for the seller or the seller’s agent. This will be an important factor in ensuring competitive costs for sellers. There is scope for the market to deliver a choice of affordable options to suit sellers’ circumstances. The market in England & Wales has done this in relation to home information packs, and some firms are already developing such options in Scotland.

A seller of a good home has nothing to fear and will demonstrate the condition and energy efficiency of the property to would-be buyers through the home report. Remember that nearly all sellers are also buyers – so they will benefit from the home report in the purchase of their next home. As the duty to provide the home report rests with the seller, first-time buyers will be the biggest beneficiaries from the changes to the system.

An improved system

The home report has been approved overwhelmingly by the Scottish Parliament, both in principle and in detail and under two different administrations.

It is strongly supported by consumer organisations such as Which? and the Scottish Consumer Council. I agree with the SCC’s view that “in a few years’ time, the new system will seem unremarkable, and we will wonder why it took us so long to finally adopt a more commonsense approach”.

I am pleased that preparations by the property industry for the introduction of the home report are already well underway. Some businesses have already begun work to adapt to the changes. The Law Society of Scotland, the National Association of Estate Agents and the RICS will soon be in touch with their members with dates for training and awareness-raising events, which we are supporting. I encourage anyone involved with buying or selling houses in Scotland to ensure that they take advantage of these training opportunities.

I remain convinced that the home report will not only bring better information for individual buyers and sellers, but will deliver benefits which will profoundly improve the way that houses are bought and sold in Scotland.

Branded pack plan

The Society’s Council has also approved in principle plans to offer a Society-branded home report pack to members.

James Ness, Deputy Director of Professional Practice, said: “It’s important that the profession is fully up to speed on home reports. Their introduction represents a significant change for conveyancers offering estate agency services and how they will do business, and we will be issuing home report guidelines shortly. The provision of a Law Society of Scotland branded home report will also help set a quality benchmark for solicitors and the public using the packs.”

The Society seeks tenders for the provision of home reports, as defined within the Housing (Scotland) Act 2006 (Prescribed Documents) Regulations 2008, to members of the Society. The tender documents can be downloaded from the Society’s homepage. Alternatively contact Charlotta Cederqvist on 0131 476 8166 for further information. Tenders close 28 May 2008.