Memorandum by the National Association
of Estate Agents (NAEA) (DHB 19)
1. INTRODUCTION
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. SCOPE OF
OUR RESPONSE
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.
3. OUR CONCERNS
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. CONCLUSION
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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