Select Committee on Office of the Deputy Prime Minister: Housing, Planning, Local Government and the Regions Written Evidence

Memorandum by the National Association of Estate Agents (NAEA) (DHB 19)


  1.1  The NATIONAL ASSOCIATION OF ESTATE AGENTS (NAEA) welcomes this opportunity to respond to the Office of the Deputy Prime Minister's Select Committee pre-legislative inquiry into the Draft Housing Bill.

  1.2  The NAEA is the country's leading professional body for residential estate agency and actively campaigns on behalf of the property industry, house buyers and sellers.

  1.3  The NAEA has 9,500 members and is the largest professional body in estate agency; representing more than 60% of estate agency in the UK. Each Estate Agent is bound by a vigorously enforced Code of Practice and adheres to professional Rules of Conduct; failure to do so can result in heavy financial penalties and possible expulsion from the Association.

  1.4  The NAEA campaigns to promote the accreditation of estate agents and to ensure that they meet minimum standards of competence and ethics. The NAEA is concerned that, as the draft legislation stands, estate agents will not be required to demonstrate such standards before they can practise.

  1.5  Since the whole of Part 5 of the Draft Housing Bill depends on those "acting as estate agent for the seller" being both competent and ethical, the NAEA believes that an accreditation for estate agents would provide an important safeguard for the consumer which would otherwise be lacking.


  2.1  In this submission the NAEA seeks to highlight the areas in the Draft Housing Bill, in particular the implementation of Home Information Packs, that need to be further examined to ensure that the resulting legislation is improved and not flawed.

  2.2  We believe that the NAEA is best placed to give evidence to the ODPM Select Committee on part 5 of the Draft Housing Bill in light of our members first hand experience in the house buying and selling process. This will provide an invaluable perspective, help to inform the ODPM Select Committee inquiry and ultimately strengthen the Draft Housing Bill.

  2.3  Proposals to consult "on the best way of tackling the problems of gazumping in the interests of responsible home buyers and sellers" were originally included in the Labour Party's 1997 General Election manifesto. The introduction of a sellers pack emerged in the 2000 Homes Bill, which fell at the dissolution of Parliament for the 2001 General Election and did not re-emerge until the publication of the Draft Housing Bill at the end of March 2003. The provisions in Part 5 of the Draft Bill re-introduce the principle of a "Sellers Pack" in the guise of a "Home Information Pack". However, enforcement of the pack duties is now proposed to be by civil rather than criminal remedies (a previous concern of the NAEA).

  2.4  Part 5 of the Draft Housing Bill:

  "Requires anyone marketing a home to assemble a Home Information Pack needed by buyers and sellers and to ensure it is available when the property is marketed, so uncertainty and abortive costs are reduced".

  2.5  This will impose a new legal duty on people marketing residential properties in England and Wales. It will require sellers, or agents, to have a Home Information Pack (HIP) of standard documents and information available for prospective buyers before marketing a property, including:

    —  The title of the property.

    —  Local authority search results.

    —  Anything relating to the property contained in a register required by or under any enactment.

    —  The physical condition of a property.

    —  The energy efficiency of a property.

    —  Any warranties or guarantees in relation to the property.

    —  Any taxes or service charges payable in relation to the property.

    —  Planning and building regulation approvals.

  In light of the Government's failure to address any of the real concerns estate agents have over the proposed introduction of the Home Information Packs, the NAEA recently reviewed its support for the Home Information Pack in its current guise. Last June the NAEA's Council passed the resolution that expressed that it was "unable to support the current proposals".

  We must make it clear that the NAEA is not opposed to the principle of giving buyers timely and accurate information. However, we believe the Government's proposals, in their current form, fall short of their original intention and will not solve the real problems experienced by home buyers and sellers.

  2.6  Moreover, the NAEA are concerned that the introduction of Home Information Packs, as proposed, could have serious repercussions on housing transactions, and consequently on house prices, and is not therefore in the best interests of the consumer.

  2.7  The NAEA has been actively engaged in discussions with the ODPM, leading to the current Draft Housing Bill, but our advice and concerns have not been reflected in the Draft Bill. Our submission is, therefore, geared to outlining some of the problems that will be created by the introduction of the Home Information Pack, as currently proposed, on the home buying and selling process.


Shelf-Life of HIPS will cause problems

  3.1  Some of the information contained in the Home Information Pack (for example local authority searches) is particularly date sensitive. Under the current Government proposals the pack will have a very short shelf-life, as there is to be no compulsion on sellers to keep the pack up-to-date. Sellers will incur further and repeated costs to refresh the pack and keep information up-to-date, given that no responsible estate agent, surveyor or lawyer would recommend that a purchaser rely on outdated information. This problem will be even more acute in areas, which experience a slower/depressed market. If a property has been on the market for some time, the information may not be up to date, placing more doubts in the buyers mind.

Delays to the buying and selling process

  3.2  The draft legislation stipulates that sellers and estate agents will not be allowed to market properties immediately. There will, inevitably, be a delay whilst the seller assembles the pack.

  3.3  Most people wanting to sell a home want it on the market immediately—especially if they have seen the next home they want to buy. For a seller who has found a property to buy, and who may face competition from others, such a delay is undesirable. It may, in some cases, cause sales to fall through—one of the problems the legislation is intended to prevent.

  3.4  Furthermore, there is nothing in the proposals that imposes any obligation upon lenders, managing agents or lawyers to provide all the necessary papers within a given timescale. The Government's explanation that "market forces" will ensure that Home Information Packs will be compiled quickly is unsatisfactory, untested and unfounded.

  3.5  In addition, the Government have estimated that, in time, due to market forces as well as technological developments, Home Information Packs will eventually be compiled in a matter of days. This only adds weight to our view that properties should be marketed from "day one" and not subject to any delay, as currently proposed.

  3.6  Widespread frustration amongst consumers will result if, as is currently proposed, an estate agent is prevented from so much as mentioning a property for sale whilst the pack is being prepared. To delay the onset of marketing while the Home Information Pack is prepared causes precisely the delay that the Government proposals apparently seek to avoid.

  3.7  A system whereby marketing can commence at the first opportunity and without delay must be in the best interest of the consumer. The NAEA believe that it would, perhaps, be more practical for the seller to compile the Home Information Packs at the point where a buyer first expresses interest in a property (as opposed to producing it before the property is marketed).

  3.8  This would have the advantage of ensuring that information contained in the Home Information Pack was up-to-date and relevant (particularly important in cases where property is on the market for several months before any interest is expressed).

  3.9  A form of "Seller Disclosure" as used in the U.S.A would achieve much the same end as the Home Information Pack, at far less expense.

  3.10  The NAEA also suggest that a system in which a buyer and seller agree to a formal "lock-out" for example, for five working days during which the date sensitive parts of the Pack are completed would be of real benefit. This pre-contract commitment would establish the good intention of both seller and buyer and give time to provide accurate and up-to-date information for the buyer to decide whether to proceed with the exchange. A regulated two-way deposit scheme (with an agent acting as bonded stakeholder) would augment the commitment.

Negative impact on the housing market

  3.11  The cost of preparing a Home Information Pack is estimated by the Government to be an average of £600 and in London the costs will average well over £1,000 per pack.

  3.12  The Government says that according to research carried out by Countrywide Assured Group (the largest corporate estate agency in the U.K.) the pack will have "very little impact" on the number of completed sales taking place each year. Conversely, research from Friends Provident Estate Agents Group calculated that up to 30% of properties would not come on to the market if the seller had to pay for a pack.

  3.13  Even if 10% of properties were taken out of the supply side of the market the result would be inflationary on house prices. The supply side of the market has been depressed for a long time and any further reduction of stock for sale will put yet more upward pressure on prices.

  3.14  A 10% reduction (10% of one million transactions = 100,000 properties) in properties on the market would also have a significant impact on the Government's revenue. We estimate (based on the Government's own figures of the average house price being £112, 000 approx. and assuming a one and a ½% commission fee) that £30 revenue would be lost on VAT alone. A 10% reduction in transactions would also equate to £112 million loss in stamp duty revenue.

  3.15  The NAEA consider that fewer properties for sale would also result in more, not less, instances of gazumping.

Impact on the consumer

  3.16  We estimate that the introduction of Home Information Packs will cost consumers at least £300 million each year in extra costs. The inclusion of the Home Condition Report in the Home Information Pack imposes an additional cost on the 80% of consumers who do not currently commission a survey but are happy to rely on a lender's evaluation.

  3.17  Moreover, estate agency is the only UK profession to operate on a no sale, no fee basis. As a result we fear that agency and conveyancing costs will soar to match mainland Europe and the US, where consequently volume sales are much lower.

  3.18  The NAEA also believe that the additional costs imposed will only act to hinder employee mobility—seen as crucial to the Government's employment policy (in particular targets of full employment) and will therefore adversely affect the national economy as a whole.

  3.19  On top of the information contained in a Home Information Pack, many building societies and banks will still require a valuation of the property to confirm the security as adequate for mortgage purposes. Lenders will not be compelled to accept the Home Condition Report as a basis for valuation and there is considerable division in the lending industry over who will, or will not, voluntarily accept the pack. The NAEA believes that this further valuation report will only add extra expense to the consumer.

  3.20  Home Information Packs have been promoted as being necessary because buyers want information upon which to make an informed offer. The NAEA would question whether this is the case. Given that the Government has confirmed that the principle of caveat emptor (buyer beware) is to remain, buyers will still have to take professional advice with the consequent expense.

  3.21  The buyer will have to carry out due diligence and incur the expense of seeking out professional advice if the content of the Home Information Pack, including the survey, is unverified and possibly out of date. The NAEA believes that this will also lead to exactly the sort of delays that the legislation seeks to alleviate.

Conflict of interest

  3.22  The NAEA believes that the consumers' needs are paramount. However, there is clear potential in the Draft Housing Bill for a conflict of interest to arise. The Draft Bill allows for a Home Condition Inspector to also be an employee of the selling agent. In a highly competitive market there will be great pressure on the consumer to accept what will effectively be a "seller's survey" instead of commissioning an independent survey—this cannot be in the interests of the consumer.

  3.23  The above proposals will almost inevitably favour the larger chains of estate agents, which have their own surveying arms, and are able to offer a "one-stop home buying/selling shop". In time this will drive smaller, independent agencies out of business, reducing competition and driving up costs to U.S. and European levels to the detriment of the consumer.

Greater gazundering

  3.24  The Government's proposals allow buyers free access to the Home Information Pack. We believe this will facilitate buyers "butterflying" between properties at no expense, holding sellers to ransom in negotiating a lower price just before exchange of contracts—so called gazundering.

  3.25  The NAEA would urge the Government to consider the approach of at least one of the voluntary sellers' pack initiatives currently under-way where the buyer has to pay a notional sum for access to the pack (this would be relevant only if the Government insisted on prohibiting marketing before the HIP is complete). This would represent an expression of "seriousness" on the part of the buyer and, at the same time, deter "time wasters".

Home information packs will become unnecessary

  3.26  Since the pack was proposed over five years ago (initially as the Sellers Pack) technology has leapt forward and many beneficial changes are already well advanced.

  3.27  Technology has advanced rapidly and voluntary changes by property professionals are already making property buying easier. Changes in lending practices mean buyers can secure a mortgage more quickly, 24 hours a day. Conveyancing companies are speeding up sales; soon on-line transactions will make sales go as fast or as slow as buyers and sellers require.

  3.28  E-conveyancing is being introduced over time and all communications and exchanges of documentation between practitioners, lenders, the Land Registry etc, will soon be undertaken electronically.

  3.29  Indeed the recently published Finance Bill paves the way for the introduction of e-conveyancing systems, which will allow purchases of property to be effected or registered electronically. The changes in technology that are taking place are radical, far-reaching, and far more significant than the introduction of a Home Information Pack could ever be. The effect of these changes will ultimately make the Home Information Pack an unnecessary and expensive irrelevance.

  3.30  The NAEA wholeheartedly supports the above technological initiatives as addressing many of the real problems in the home buying process. However, we believe that the draft legislation does not take into account the impact of new technology on the home buying process. We would encourage the ODPM Select Committee to secure further evidence in this regard.

Abortive costs and uncertainty will remain

  3.31  As outlined by Lord Rooker, the Minister of State, Office of the Deputy Prime Minister, the inclusion of Home Information Packs in the Draft Housing Bill is intended to reduce "uncertainty and abortive costs".

  3.32  However, the Government's own document "Key Research on easier home buying and selling" published in 1998[3], revealed that just 13% of abortive purchases were caused by a bad survey, (which is arguably the only factor which could be dealt with by a Home Information Pack). These findings demonstrate just how ineffective the Home Information Pack would be in reducing aborted costs, delay and stress.

  3.33  Home Information Packs could realistically deal directly with only one of the causes of abortive transactions—cases where a buyer receives an unexpectedly unfavourable structural survey. These account for only 4% of all failed transactions. NAEA therefore believes that the Home Information Pack will not alleviate the causes of the vast majority of abortive transactions.

HIPS have not been adequately trialled

  3.34  There has been no structured trial of the Home Information Pack thus far to assess its effects. A very small pilot scheme was run in Bristol in 2000, involving less than 60 sales. In the light of the current 1.3 million property transactions in the UK and given that the packs were free and piloted in a relatively affluent area, it is difficult to draw any substantive conclusions.

  3.35  In addition, the Government has no plans to monitor and/or evaluate the implementation of Home Information Packs. There are also no plans to set specific targets to assess whether Home Information Packs have met their policy objectives.

  3.36  NAEA urges the Government to conduct a large-scale, more robust trial of the pack to take place before legislation is enacted and a national scheme imposed.

  3.37  The Government intends to rollout Home Information Packs on a national scale. The NAEA strongly recommends that the scheme be rolled out on a region-by-region basis because the vast majority of people move within a fairly limited geographical area and because a regional rollout would satisfy the need for a more robust study to assess the impact and efficiency of the pack as mentioned above.


  4.1  The NAEA believes that the draft legislation needs to take on board our concerns with regard to Part 5 of the Draft Housing Bill. The Home Information Pack will not substantially solve the real causes of delay, frustration and abortive costs in home buying and selling. There is nothing in the Draft Bill's proposals that binds the buyer and seller together any earlier than at present. The sale/purchase is still not secure until the contract is exchanged and ultimately chains will still control the progress of most sales.

  4.2  Moreover, since the Pack was proposed over five years ago, technology in the home buying and selling process has advanced rapidly and voluntary changes by property professionals already make property transactions easier. These developments, welcomed by the NAEA, make Home Information Packs, as envisaged in the draft legislation, an unnecessary expense.

  4.3  The NAEA is fully committed to ensuring that the proposals contained in the Draft Housing Bill are as practical, beneficial and cost effective for the consumer as possible.

3   Source: DETR Key research on Easier Home Buying and Selling December 1998. Back

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