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Market movers

17 March 08

How the major solicitors' property centres are already preparing to launch new services for the coming of home reports, and how solicitors must also prepare

by Peter Nicholson

It has been talked about for nearly 30 years now, and has been resisted by much of the solicitors’ profession in Scotland for most of that time. But just over eight months from now, the single seller’s survey is set to become an unavoidable necessity in nearly all residential property sales.

The approval by the Scottish Parliament on 7 February of the Housing (Scotland) Act 2006 (Prescribed Documents) Regulations 2008, bringing in the “home report” of which the seller’s survey will be a key part, signals a countdown period in which property marketers must set aside any continuing reservations and focus on the real issues that will have to be faced in meeting clients’ needs and expectations under the new regime. But is it possible that solicitors can make it work to their advantage?

A market to be won

“I think the answer is they can,” claims Ron Smith, chief executive of Edinburgh Solicitors’ Property Centre (ESPC), “because what we’re offering is a very slick integrated solution which will allow member firms to interact more efficiently with their business partners, people like surveyors and others who have a role to play in this, and also allow them to deliver a very fast, seamless service to their clients. And I think in that sense solicitors have a potential advantage over other people because the more of a one stop shop you are as a business, the more attractive is the business model to clients.”

In Glasgow also, GSPC on a practical level already has in place much of the infrastructure required to deliver home reports, according to head of marketing, Mark Hordern.

“GSPC has market leading experience in enabling law firms to manage their portfolio of properties for sale using online tools. It was the first SPC, for example, to allow its members to register properties for sale online, and this invaluable experience will be used to develop an easy-to-use mechanism for instructing and delivering home reports.”

Both men are speaking in the context of large property centres with a financial muscle not available to centres in all parts of the country. Yet the “one stop shop” point surely holds good for any location. Ken Thomson, a director on the board of Tayside Solicitors Property Centre, who are discussing their own strategy, predicts a strong marketing campaign by home report providers, but warns that the more solicitors have to rely on third party, non solicitor-based providers, the greater the danger that solicitors could lose control of their estate agency business to outside agencies, including non-solicitor estate agents employing their own surveyors, or even the providers themselves, should they choose to enter the market.

“The home report, and the process by which it is created, will be a powerful marketing tool, and the more control anyone involved in the sale of property can maintain over that process, the better equipped they will be to retain their position in the market”, he comments.

Thus the challenge will be for legal firms and SPCs to gear up locally to maintain a competitive edge in the face of other providers who can be counted on to seize the marketing opportunity presented by the new system.

Joined at the HIP?

Significantly, Smith also speaks on the back of his organisation’s experience of the introduction last year in England & Wales of the home improvement packs, or HIPs. Although content-wise the two schemes are very different, ESPC has already leveraged the process and the IT platform it developed there, and has publicly launched the “MoveMachine” service it provides down south.

The London government’s vacillation as to the timing and content of HIPs has filled many newspaper columns, and a negative publicity campaign still continues in some quarters, apparently in the hope that the whole scheme will be scuppered. That does not appear a likely outcome in Scotland.

Among the crucial differences between the two schemes, the HIP contains no survey report or valuation, but does require certain local authority searches which can slow up considerably the process of providing the HIP. And there appears to be no scope in Scotland for copying the phased introduction of HIPs, beginning with four or more bedroomed houses, that eventually took place – the 1 December start date is only just ahead of the EU deadline for implementing the energy efficiency report. Smith believes with hindsight that the English phasing was actually quite helpful, and that the Scottish Government is staking a lot on the surveyors’ profession in particular having the capacity to cope with its “Big Bang” approach.

Time to market

What will clients have to get used to? The more radical changes, of course, are on the seller’s side. Apart from the question of additional outlays up front – to which we return below – the first issue is that of timing. No longer will a client who has found their dream property be able to instruct the marketing of their present house from scratch the same day. Under the regulations, the home report must be available in writing before the property is put on the market, and be provided to any prospective buyer who asks for it. It is the selling agent who incurs the latter duty; default may result in a £500 penalty notice from the local authority.

The requirement that the report be given to the buyer “within nine days” might be thought to give a little leeway, but best advice to clients will be to have everything in place at the outset.

“Agents will be required to perform a balancing act, with the obligations placed on them by the legislation to the buyers and their own customer service objectives to the seller not always in tune”, warns Alison Hatrick, a valuer and estate agency manager for GSPC member Inverclyde Estate Agency, who has been closely involved in the government consultation processes resulting in the new legislation. “Where a seller is committed to a purchase this will increase the stress felt by them.”

Hence the promise of speed in getting to market will be critical in attracting and retaining business, with the prizes likely to go to those who can offer an integrated, online service with minimum data input time and maximum public access.

That is indeed the approach being adopted, certainly by the larger solicitors’ property centres in Scotland. Edinburgh is confident that its integrated platform, to which one leading firm of surveyors has already signed up, will permit a property to be marketed almost from the word go. Glasgow promised at its recent property marketing conference that its online registration tool would support an easy-to-use mechanism for instructing and delivering home reports. Aberdeen was due to launch a test site this month for local firms, developed from its existing interactive online platform. Some smaller centres are understood to have stayed their hand rather than commit resources ahead of the regulations being approved; for them the topic will now be moving rapidly up the agenda.

The role of the centres will be crucial in keeping costs down for legal firms. While some firms may develop an in-house service, an online platform open to solicitors at no capital cost to themselves will be a strong selling point. “Unlike most alternative suppliers, GSPC has not been set up to profit from the introduction of home reports, and will actively work to ensure that costs to firms and clients are kept to a minimum”, Mark Hordern promises.

How many surveys?

The next potential pressure point is the survey that reveals some unwelcome news to the seller. “The client will be paying for the survey but will have no ability to input to its content”, Alison Hatrick points out. “They can correct factual errors but otherwise will need to accept the survey as produced.” And in addition to dealing with client objections to the content, or the valuation proposed, agents may need to manage information on repairs that the client wishes to make in response to the survey, and provide further documentation to prospective buyers.

She suggests in addition that selling agents should be careful to instruct surveyors who are on the panels of most mortgage lenders. Indeed there is a view that sellers with the means may find it advantageous to instruct more than one survey and market their property using the most favourable report. As there will be no central register of surveys, there will be no way of knowing whether a seller has done this.

The RICS view is that surveyors will require a record to be kept of every potential buyer in order to meet with their insurance requirements, and because if further information requires to be communicated, it would need to be transmitted to everyone who had viewed the survey.

If buyers come to rely on the seller’s survey, sellers’ agents will have to weigh the level of interest very carefully in deciding whether to set a closing date; as Hatrick notes, “With potential buyers able to access a selection of surveys prior to making their choice they may grasshopper from one property to another.”

The lender question

On the buying side the big unresolved question is the attitude of the Council of Mortgage Lenders. “The government’s tack is very much that the market will put pressure on lenders to accept this information”, observes ESPC’s Derek Lithgow, “and if some lenders don’t want to accept it, others will and buyers will be steered towards them. If they’re not, they will have to pay again for additional surveys and valuations. We’ll have to wait and see if that’s the way it’s played out. “But even though the reports to be provided will be much more detailed than the scheme 1 valuations usually relied on at present, the CML has yet to declare its acceptance of reports instructed by the seller, and some take a sceptical view as to whether the market can bring effective influence to bear.

Whatever the outcome here, it is widely predicted that some buyers will instruct an additional valuation, for example if they require a higher valuation in order to support their loan application.

Alison Hatrick points out that the inability to discuss reports with their surveyor authors will put the other professionals involved into the front line in dealing with queries. “All members of staff will have to have an awareness of the new system, and importantly what information and advice they can give. With questions likely to arise about surveys there is a real danger that casual remarks could result in inappropriate information being given, and liability for the agency.”

Who pays, and when

For many clients the question of cost and, as important, cash flow, will be the decisive factor. Although the cost of the seller’s survey itself is usually estimated at between £400 and £500, when the energy performance certificate is taken into account along with matters such as property centre registration fees, printing of sale particulars and the like, an initial outlay of £750-£1,000 is being predicted – before any additional advertising the client may wish. Yet the client will not be in funds from the sale until after the entry date maybe months ahead.

Surveyors will want to be paid, and solicitors will not wish to fund home reports up front, so is the only option to turn to the client while putting the blame on the government? Here in particular the two biggest centres are already using their financial clout. While GSPC has yet to announce details, Mark Hordern promises that in line with its current delivery of services to solicitors at “below commercial rates”, it will offer “a range of payment options designed to ensure that solicitor estate agents can provide home reports in a way that appeals to clients and secures the firms’ competitive position”.

Meanwhile Edinburgh is offering a menu of finance options both for member firms and their clients, all designed to spread the payment load and keep the cost off solicitors’ books, says Derek Lithgow. “We’ve developed a range of options covering vendor upfront and deferred payments, no-sale-no-fee, and a range of business-to-business deferred payment terms.”

Communicate, communicate…

While the centres emphasise the role of government in delivering a public information campaign in the runup to 1 December, avoiding the damaging prevarication that took place down south, they also recognise that it will be down to their member firms both to gear up internally and to market their services effectively.

“Unless the marketing communication at all levels, in terms of solicitors advising their clients and the government making information available, is pitched right, there will be confusion on the part of the consumers”, says Ron Smith.

“So whilst we are comfortable that we have solved the technical problems, in other words we will make this happen, what we are concerned about is the challenges solicitors will face in educating their clients. We also recognise there will be a training need for them and their staff, and that’s something we’re looking at very carefully at the moment.”

The message to solicitors from those at the hub of the system, is that while the average firm should not need much in the way of investment in new systems or personnel, don’t underestimate the significance of the changes that are coming, and think very carefully through all your client handling issues well ahead of 1 December.


FROM THE SOCIETY

The regulations requiring houses to be marketed with a home report (formerly the purchasers’ information pack, or PIP) were formally approved by the Scottish Parliament on 7 February 2008, as a briefing issued by the Law Society of Scotland notes.

The regulations are expected to come into force on 1 December 2008, assuming the successful passage of a s 104 order at Westminster, required as consumer protection matters are not devolved. After that date it will be an offence, subject to a penalty of £500, for a house to be marketed without a home report. There are some exceptions, the main ones being new and recently converted houses.

The home report will comprise:

the single survey – an assessment by a surveyor of the condition of the house, a valuation and an accessibility audit

for people with particular needs;

the energy report – an assessment by a surveyor of the energy efficiency of the house and its environmental impact with recommendations as to energy efficiency improvements. This is a fuller version of the energy performance certificate, soon to be required for houses being rented out;

the property questionnaire – formerly known as the property sale questionnaire, this is completed by the seller of the house or their marketing agent and contains general, practical information about it.

The Law Society of Scotland is represented on the Scottish Government’s Home Report Implementation Group. The group is tasked with ensuring that the various professionals engaged in the housebuying process are adequately trained, and also with raising public awareness of the new statutory requirements.

Janette Wilson, convener of the Society’s Conveyancing Committee, comments: “The Society has been involved in the creation of the home report throughout the various stages of its evolution and is continuing to work with the government to help ensure that the planned changes will be of benefit to the Scottish public.

“While we have expressed concerns about the need for a single survey within the pack and some of the consequences which may flow from this, we have fully supported the endeavours from across the political spectrum to improve the housebuying process and Scotland’s housing stock as a whole. It’s important that the changes help to ensure the speed and clarity that the Scottish conveyancing system is known for and that the Scottish public are made well aware of them. It is also critical to the successful introduction of the home report that those working in the property sector are fully up to speed on the new requirements by December.”

The terms and conditions which will apply to the single survey are currently being worked on, as is the finalisation of professional indemnity cover for surveyors preparing such reports. Once these steps are completed, the Society will issue guidelines to the profession regarding particular issues which may arise as a result of the new procedures. The Society is also exploring the option of providing home report packs for the profession.

The Scottish Government has set up a website, www.homereportscotland.gov.uk, which will be updated as further information becomes available. Interested parties will be able to sign up to receive e-bulletins, which the government intends to issue at regular intervals between now and 1 December.