Best foot forward?

Chairman of the group which proposed the single survey scheme offers his view as to why it offers a positive way forward

The Journal, March 2004, page 60

Much has been written in the press, and much said in other public media, of the potential advantages and disadvantages of the proposed Single Survey scheme which will be launched on 26 April in various parts of Scotland, chosen for their market condition and diversity (Journal, December 2003, page 62). I was asked in 2002 by the Communities Minister to chair the sub-group of the Housing Improvement Task Force (HITF) to consider the house buying and selling system in Scotland and make recommendations as the group thought appropriate. I currently sit, as one of two independent members, on the Executive’s Single Survey Steering Group, and accordingly, as an author of the proposals, declare my interest to promote its hoped-for success.

What actually needed fixing?

At the beginning of the life of the sub-group, it became clear that we needed to commission independent research regarding what were considered to be the advantages and disadvantages of the current house buying and selling systems, with views from all interested groups, including consumers. The report by DTZ Pieda Consulting makes interesting reading and can be found at www.scotland.gov.uk/hitf. The findings had a considerable impact on how we proceeded, but suffice to say the overall view of the report was the house buying and selling system in Scotland worked well, particularly compared with other parts of the UK. For many years, however, there had been debate about the merits of housebuyers commissioning surveys or, perhaps, moving to a seller-commissioned survey.

There was considerable discussion amongst the members of the sub-group, having taken evidence from the three critical professional bodies – the Law Society of Scotland (“the Law Society”), the Royal Institution of Chartered Surveyors (RICS), and the Council of Mortgage Lenders (CML). Since 1945 there have been several committees set up by the Government to consider the same issue but without promoting positive results. In proposing the concept of a single survey, we required to consider what would be the general merits of the approach (if any) and if there were merits, how would the operation of this system be worked out in practice? As is now obvious, it was felt by the sub-group that there were considerable advantages in moving to a single survey system and for that reason there were a series of further meetings with the Law Society, RICS and CML. In devising the final proposals, each of the obstacles that were highlighted at the beginning of the exercise by these three bodies were dealt with as best we could with, where possible, specific proposals.

Importantly, in England and Wales the move to a seller survey based system was statute based, but we believed the advantages of our proposed system were so great, that the proposals should be embraced in a consensual way without need to resort to statute. The HITF Final Report makes it clear that the Executive consider the system to be such a considerable advantage that the proposals should be piloted. A critical part of the proposed process is the independence of the survey which, although commissioned by the seller, would ultimately be relied upon by the purchaser, and could be utilised by the successful purchaser in any negligence claim he could have against the surveyor. This is the principal reason that we proposed the description of the survey as a “single survey” rather than a “seller survey”.

Why the single survey?

The purpose of the single survey is to seek to remedy three important defects identified by the DTZ report and being voiced by consumers as criticisms of the current system. These weaknesses are:

The current system appears to encourage purchasers to use scheme 1 valuations which provide very limited information on the condition of the proposed property. It was generally felt that scheme 1 valuations were inadequate to meet the necessary level of information that a prudent purchaser should require. This was supported by the views, not merely of the Law Society, but also RICS, who were, in 2002-03, entering into a public relations campaign seeking to encourage purchasers to move from the cheaper scheme 1 to house buyer surveys (scheme 2).

It was very obvious that a criticism of our current buying and selling process is the potential for multiple surveys and valuations. Although there was some evidence that the multiple surveys were largely confined to hotspots in particularly buoyant housing markets, namely Edinburgh and the West End of Glasgow, it is a criticism often levelled at the system. Multiple survey potential did lead, in the group’s view, to potential abortive costs for house buyers and led to a disinclination to commission the more detailed – but more costly – house buyer’s survey in advance of purchase.

A further important criticism of our current system, is the setting by sellers of low upset prices at a level materially below the realistic selling price of the property. These low upset prices encouraged potential purchasers incurring unnecessary survey or valuation costs in respect of properties that were clearly outwith their own individual price ranges.

How will the single survey help?

The essence of the single survey solution is that it seeks to resolve these perceived problems in the buying and selling process by the provision of a single House Condition Report which is available to all prospective purchasers of the property. It is critical that the report can, with confidence, be relied upon by prospective purchasers. It must be independent and, although commissioned by the seller, RICS will ensure the independence of that report, obviating the potential of influence on surveyors by instructing sellers. The survey report will provide a very comprehensive guide to the condition of the property, together with a declared valuation. It therefore follows that it would provide much more detailed information to both house buyers and sellers than is usually the case at present, and would, accordingly, avoid the need for competing house buyers to commission independent surveys or valuations. Clearly, if they did not wish to rely on the single survey, they would still be able to commission their own report. Importantly too, the single survey would contain an independent valuation of the property, and so strike at the much disliked practice of setting very low upset prices.

It is critically important that there is confidence in this new system, and the independence of the single survey is key. As the main beneficiary of the single survey report will be the ultimately successful purchaser, it was envisaged that the cost of the report would be borne by that purchaser in due course. Evidence from the DTZ report was that purchasers would be willing to pay the increased fee to be able to rely on a more detailed report and, if necessary, sue the surveyor in the event of there being any negligence in its preparation. The finalisation of the proposed contractual documentation enabling the prospective purchaser to rely on the single survey report is currently underway and CML will have the ability to rely on this report. CML have given the single survey their full backing and the single survey will be used by them as the basis for loan purposes.

Over months of debate issues like conflict of interest, independence of the report, professional guidance, longevity of the survey, and the general merits of a single survey were discussed at much length. If the single survey system works, it will result in all purchasers having a much more detailed report on the condition of the property than they tend to have under the current arrangements, multiple surveys will disappear, low upset prices will be a thing of the past, and the high level of consumer confidence in the Scottish house buying and selling market will be enhanced and improved. It is interesting that in the general media, where there has been much comment on the single survey proposals, it has met with very considerable support. Scepticism voiced by consumers has been in relation to the “independence” of the single survey report, making it critical to take efforts to ensure that potential purchasers are fully confident that the single survey is truly independent on the condition of the property, and its valuation.

The implementation phase

The Implementation Team instructed, by way of competitive tender, consultants to help monitor the process, gauge its successes and failings, and help ensure the single survey is embraced as a very positive improvement to the system. It is envisaged that on application to a solicitors’ property centre or estate agent the single survey will be available online. Ease of access for potential buyers, logging their details and gauging their response is key. The vision is that competing purchasers will all use the single survey, which contains a full condition report on the property with an independent market valuation. The successful purchaser will have purchased the property with clear and detailed survey information and, at completion, will indemnify the seller for the cost of the single survey and thereby be able to rely on it if redress against the surveyor in future is necessary. The other unsuccessful purchasers move on to consider other properties but without the legacy of abortive survey/valuation fees.

I have deliberately sought in this short article to deal with the issues of principle, and the Housing Improvement Task Force report (www.scotland.gov.uk/hitf) contains full information on the thought process leading to the conclusions that were made and the suggestion of the single survey. I would strongly commend you to this document as a full background for the understanding of the proposals to date and I very much hope that, alike to the sub-group views, the proposals and their implementation are seen as a very positive way forward for the buying and selling consumer and also enhancing the position of Scottish solicitors in the house buying and selling market.