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

Memorandum by the Royal Institution of Chartered Surveyors (RICS) (DHB 35)


  RICS has 113,000 members around the world working in every aspect of property and construction, some 20,000 of whom belong to its Residential Faculty. RICS is committed by its charter to serving the public interest and seeks to do so in all its submissions on matters of public policy.

  We divide our evidence into two parts;

    (A)  Home Information Packs;

    (B)  Other Parts of the draft Bill.



  RICS has consistently supported the concept of Home Information Packs. In line with consumer bodies such as the Consumer's Association we believe that prospective buyers should have access to as much information as possible before they put in a bid for a property. At present they have little more than the estate agent's particulars. Our support for the pack, therefore, rests principally on the premise that it is likely to create a better informed market place. Whilst it may be true that some prospective buyers may not be able to understand all of the information in the pack, we believe that many buyers will welcome the ability to access information at an early stage of the transaction process.

  In some cases the introduction of packs should also speed up the transaction process. This is because much of the information that currently has to be sought after an offer has been accepted will already have been gathered. There should also be less need for renegotiation stemming from concerns about the condition of the property as such information will have been available to buyers before offers are made. However, there can be no guarantees that the new system will speed up transactions because the problem of chains will continue to exist and, for a variety of reasons, buyers and sellers are not always keen to proceed as swiftly as possible.

  Whilst RICS generally supports the principle of the HIP we recognise that the Bill is very much a "skeleton" and that the subsequent regulations will fill in much of the detail. Getting that detail right will be absolutely critical to the success of the proposals. Indeed, a number of issues which are still to be fully resolved could be potential "deal-breakers".

  We also recognise that there are a lot of unknowns which make the impact of HIPs somewhat unpredictable. These include questions about what the consumer reaction will be when sellers are confronted with upfront costs, the extent to which the market will be affected and whether it will be possible to recruit sufficient numbers of home inspectors.

  We set out our chief concerns below.

Contents of the pack

    —  If HIPs are to command public confidence they must be capable of being put together in a number of days. This means that the vast bulk of the information required from bodies such as the Land Registry and local authorities must be available on-line. Questions remain as to whether some of this information such as local authority search information will have been made available on line by 2006, the expected starting date for HIPs.

    —  We recognise that many members of the public would struggle to understand all of the contents of the pack. However, the merit of having the pack prepared before marketing is that as soon as an offer has been made all of the necessary information can be passed immediately to the buyer's legal adviser.

    —  Clearly, there may be legitimate reasons why a piece of information for the pack cannot be readily obtained and it would be wrong to hold up the marketing of the property in such cases. Obtaining management accounts when leasehold properties change hands, for instance, can be notoriously difficult. However, there is a danger of a loophole here. We believe that there is a set of essential information that must be included in the pack before any property can be marketed. This would include elements such as the Home Condition report, replies to searches, terms of sale and the seller's property information form.

    —  We consider it essential that information about fixtures and fittings is included in the pack as a lack of clarity in this area is a source of endless wrangles between parties

    —  There is a danger that buyers will assume that the content of the pack is correct whereas the compiler of the pack will have no role in verifying the accuracy of the information supplied. This must be spelled out very clearly to buyers.

    —  Buyers may turn to estate agents for advice in interpreting the pack. However, agents will have to very circumspect in any advice that they choose to give in light of the liability that they might incur. This might lead to a demand for home information pack advisers.

Home Condition Reports

  Home Condition Reports (HCRs) are one of the most controversial elements of the pack. In their favour it can be said that:

    —  less than 20% of buyers currently commission a survey, many simply relying on the mortgage valuation. A condition report should, therefore, provide the majority of buyers with more information than they currently receive about what is often the most important transaction of their lives.

    —  Government research appears to show that the HCR is the part of the pack that buyers find most useful and accessible.

    —  Home Inspectors (those undertaking HCRs) will be tightly regulated by an independent body and will be liable to both buyers and sellers for any negligence on their part.

    —  the aim is that HCRs will be of an equivalent standard to the RICS's House Buyers Report and Valuation (but without the valuation element).

  HCRs do, however, give rise to many difficult issues:

    —  surveys are currently carried out almost exclusively by members of RICS. However, those doing this work full time are estimated to account for only 3,000 of RICS's 113,000 membership (although several thousand more carry out surveys on a more occasional basis). Moreover, the age profile of surveyors engaged on such work is increasing and recruitment is proving difficult. The introduction of HCRs will lead to a need for perhaps 7,500—10,000 full time Home Inspectors. The intention is that some of these will be recruited from a range of built environment professions whose members may have relevant skills enabling them to be trained as Home Inspectors. Other Home Inspectors would need to be trained from scratch, a process that would last at least one year. The question is whether it will be possible to recruit sufficient numbers of Home Inspectors of the requisite calibre before the introduction date of HIPs. It is difficult to answer this question as few people are gong to commit themselves to train as Home Inspectors before legislation is well on the way to receiving Royal Assent. Whilst intensive efforts will be made to recruit Home Inspectors the availability of sufficient Home Inspectors is likely to be the most crucial element in the Government's decision about when to make HIPs mandatory.

    —  one of the most difficult issues is ensuring that those carrying out Home Inspections are backed by insurance. The problem is that professional indemnity insurance is currently in crisis with premiums going through the roof. As one experienced Chartered Surveyor with a very good claims record put it to us: "My current premium is £8,600 per annum on a turnover of around £150 000. At over £20,000 per annum I may need to re-consider my future career". If experienced Chartered Surveyors are struggling to find professional indemnity insurance at affordable rates, the prospects for the thousands of new Home Inspectors looks exceedingly bleak. In order to overcome this problem work has been commissioned to find a new means of providing insurance cover—a mutual insurance scheme whereby each home inspection would be separately insured. However, we have not yet had an opportunity to examine the workability of these proposals. What is clear, however, is that a mutual insurance scheme would only work if the Government was prepared to underwrite the scheme for an initial period. Another drawback of such a scheme is that those with extensive experience would effectively be subsidising those with little experience. Moreover it would pose particular problems for Chartered Surveyors who would effectively have to pay two sets of insurance for some years. This is because they would have to contribute to the mutual scheme whilst maintaining run-off insurance to cover any claims arising from previous work. Resolving these difficult insurance issues is essential to the workability of the Government's entire scheme.

    —  Another key question is whether HCRs will be of a sufficiently high standard and carried out by people with suitable qualifications. Qualifying as a Chartered Surveyor is a five year process whilst a person will be able to qualify as a Home Inspector by obtaining a vocational qualification after just a year's training. Whilst the training of new Home Inspectors may equip them with enough knowledge to tackle many "average" homes there are many defects even in supposedly "average" properties which those with limited experience would struggle to spot. This applies even more in the case of older or atypical properties which require comprehensive building surveys rather than HCRs, surveys that can be carried out satisfactorily only by those with a higher level of professional expertise such as Chartered Surveyors. As to the overall standard of the HCR, the objective is to achieve a standard roughly equivalent to the current RICS Home Buyer's Report and Valuation (but without, of course, the valuation). RICS believes that the HCR in its present form is broadly on the right lines but we have made some detailed suggestions for improving it. The extensive testing to be carried out later this year both into its technical content and to consumer satisfaction with it will be particularly important.

    —  At present mortgage lenders require a mortgage valuation (at a typical cost of £150) before deciding whether to make a loan. It will be up to lenders to decide whether they wish to continue to do so once HCRs are introduced. Many lenders may conclude that the availability of the HCR coupled with the desktop valuation data that they hold may obviate the need for such valuations in the majority of cases. If this were to be the case then this would partially offset the cost of the HCR as most sellers are also buyers.

    —  If a property stays on the market for a long time then the buyer would have to decide whether to "refresh" the HCR. It would be both impractical and costly for the seller to be required to update it every few months.

    —  All HCRs will be held on a databank. With some 2 million HCRs likely to be carried out in an average year this databank will soon grow to an immense size with tens of millions of HCRS recorded. A great many issues will need to be addressed including who can access the databank and the purposes for which such commercially valuable information can be used.

    —  It is difficult to see much point in requiring HCRs for the comparative handful of large country houses which exist. Both the buyers and sellers of such properties invariably have access to professional advice. Inspectors should be allowed to issue a certificate of exemption where a HCR is simply impractical.

    —  The energy efficiency report relies on the use of SAP software but such software does not work for all stock. Large and non-standard properties would therefore be rejected. We estimate that the SAP technology would encompass around 85% of the stock.

    —  The quality of environmental searches is generally poor and, as it is not site specific, may cause unnecessary alarm. We are not convinced that the additional cost of this type of information is justified.


  The Bill forbids marketing of properties until a HIP has been prepared. A great deal of thought will need to be given to the definition of "marketing". Detailed guidance will be needed to spell out what may and may not be allowed, particularly in the grey area of pre-marketing. What, for instance, will agents be able to say to potential buyers about properties for which packs are currently in preparation? When a property is about to be placed on the market it will be difficult for agents not to communicate the information in some way, if only being seen leaving a property with a clipboard. There is a need to define when agents responsibilities begin and to define what is meant by taking a property off the market. RICS would be happy to help in defining the boundary between what may be acceptable and unacceptable.


  We are concerned about the ability of Trading Standards Officers to enforce the new rules. Frankly, will they understand the complexity of the market issues and the way the new system will operate? Clearly, training will help a good deal but it will be a very big job—a possible 2 million cases per annum, 12,000 estate agents offices and as many as 5 million buyers and sellers. Against this background, it is unlikely that Training Standards Officers will be able to take a very pro-active approach but will need to rely instead on incidents being reported to them.

Role of Estate Agents

  The reforms will give the estate agent a more central role in the housebuying process. Many will decide to take responsibility for the preparation of packs. There will, therefore, be potential additional risks within estate agency in regard to HIP content or omissions as well as situations where estate agents may be drawn into interpretative actions or advice. Training will help but there will be pressure from buyers and sellers for explanations.

  More broadly, the enhanced role of agents is likely to prompt calls for increased regulation of estate agency. In this context it is significant that an OFT inquiry into estate agency is currently underway prompted by a record increase in complaints about agents. RICS thinks that it is unacceptable for England and Wales to continue with a position whereby those entering into estate agency do not need to demonstrate even the most basic standards of competence. Whilst we are totally against anti-competitive legislation we would point out that minimum standards of competence are required even in such free market economies as the USA. Those agents seeking to maintain high standards greatly resent the minority who bring the profession into disrepute.

Will there be a reduction in properties coming on to the market?

  It is very difficult to predict whether the introduction of upfront costs on sellers will lead to a reduction in the number of properties coming on to the market. Clearly, there are the "toe-dippers"—those who are not necessarily committed to selling but having nothing to lose in testing the market. Whilst, it is true that such "toe-dippers" can represent a significant amount of abortive costs for agents, it is also true that a significant amount of agency business is generated by those testing the market. It is likely, therefore, there will be some reduction in the number of properties coming on to the market. However, it is very difficult to gauge the scale of the reduction or to say whether the impact will diminish over time.

Who should be able to provide search information for HIPs?

  We favour allowing the house information pack to contain search replies by local authorities and other home providers (eg NLIS) and by any person who has adequate insurance to protect the buyer in the event of inaccurate replies.

New Homes

  When a new home is marketed after it is physically complete we propose that a full home information pack should be provided. We do not believe that properties subject to warranty schemes should be exempt as warranties do not mean that properties are free from defect. When a property is marketed off plan before completion we agree that it would be impossible to include a HCR. However, a full range of other information should be provided.

Low Value Property

  As the Government says, there is no easy answer to the problem of requiring those selling very low value homes to prepare HIPs. However, trying to set an arbitrary figure below which there would be no need to have a pack would be fraught with difficulty. It would also stigmatise whole areas. Moreover, it should be remembered that it is the buyers of low value homes that probably need the most help. We believe that it would be better to leave the market to find a solution. In any case, where property values have completely collapsed they are rarely marketed in a conventional way.


  RICS has been involved in detailed consultation over all of these areas of the Bill, in some cases over several years. We strongly support the thrust of the changes proposed but a number of concerns remain.

Licensing of Houses in Multiple Occupation

  Arriving at a satisfactory definition of a House in Multiple Occupation (HMO) will be crucial. Within the definition we would support the inclusion of residential properties converted prior to 1991 (when new building regulations came into force) which have shared common parts and facilities. Two storey properties should be excluded except where they have shared facilities. All tenures across the state and private sectors should be included in the definition. We also consider that no purpose-built property be included within the definition. If the definition were to embrace a much wider range of residential property then we would be concerned at the ability of the industry to cope with the additional legislation and regulation. This, in turn, could lead to a diminution of housing supply, contrary to the Government's stated intention to increase supply.

  RICS supports the introduction of Interim Management Orders (IMOs) to deal with inappropriately managed multi-occupied properties that fall outside the HMO definition. However, discretion as to whether to apply IMOs will be with local authorities and there is a need to ensure a reasonable consistency of approach. We would, therefore, favour a requirement for local authorities to apply to the County Court for authority to exercise the power. The Secretary of State in England and the National Assembly for Wales should also issue statutory guidance about the circumstances in which this power can be used.

  Resources should also be provided to publicise the existence of the licensing regime and to educate landlords about their responsibility to provide safe and habitable accommodation.

Selective licensing of other residential accommodation

  RICS supports this measure as a means of enabling Local Authorities to prevent abuses in areas of low housing demand. This measure should be used ONLY in areas of low housing demand. The standards set by the National Approved Letting Scheme (NALS) should be the minimum standards required of agents to manage in areas of low housing demand and we would support NALS becoming the policing body in these areas. In order for this to proceed, we believe NALS should be given a more significant role in the process and should be involved in such matters as the deposit holding schemes and dispute resolution, with the housing ombudsman as the final arbitrator.

Right to Buy

  RICS supports the overall aim of the proposals in the draft Housing Bill. At a time of excessive house price inflation, RTB activity is intensifying the problem associated with shortages of affordable housing. Since 1980, when the policy of RTB was introduced, a total of 750,000 council homes have been sold with little replacement. This is creating an enormous problem for those on lower incomes who rely on the adequate provision of affordable social rented accommodation. In our view the policy of RTB has successfully achieved its original objective of giving large numbers of council tenants access to secure home ownership. In many areas this will continue to be of benefit and council tenants should continue to receive discounts (albeit at a reduced rate in some areas). However, in areas of very high housing demand, RTB is generating significant shortages in affordable housing and must be curtailed.

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