Memorandum by the Royal Institution of
Chartered Surveyors (RICS) (DHB 35)
INTRODUCTION
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.
(A) HOME INFORMATION
PACKS
Overview
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.
Marketing
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.
Enforcement
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.
(B) OTHER PARTS
OF THE
DRAFT BILL
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.
| 
