Scottish Property News

Home Reports are now here

From Monday, anyone selling a house will have to commission and pay for an upfront survey, known as a home report, that will include details about a property's energy efficiency and other useful information. The process appears straightforward but the effect on the housing market could be profound, according to those involved in house sales, who have predicted everything from disaster to a much-needed stabilisation of Scotland's highly contested "offers over" system.

Given that there has been a huge slowdown in the number of sales being completed over the past half-year and the fact that December is traditionally a slow month for the housing market, the immediate effect may not live up to some of the hype.

But, with a few days left before it is introduced, estate agents, lawyers and surveyors agreed that home reports will have a deep and lasting impact - though they gave differing predictions of what that would be.

A frequent argument deployed against home reports has been that they would lead to a slump in house sales, with potential sellers unwilling to pay the cost of having one commissioned. The Scottish Law Agents' Society, a voluntary organisation of around 1800 members which has run a concerted campaign against home reports, said evidence of this was already emerging and that the past few weeks had seen a "substantial" surge of people wanting to put their homes on the market in order to avoid the requirement to commission a report.

Ian Ferguson, spokesman for the society, said: "We have been trying to make our clients aware of the costs involved in commissioning a home report and advising them to put their house on the market. Clients have voted with their feet."

But others appear to have taken the opposite tack. Clyde Property, which has around 1000 properties on the market, has been encouraging its clients to commission home reports before they become mandatory. Bill Cullens, the estate agent's founder and director, said: "The rationale is simple. If you found two identical properties, side by side, and one had a home report and the other didn't, which one would you buy?

"We have been recommending to everyone who has put their property up for sale in the past 10 days to commission a home report and the take-up rate has been virtually 100%. We have also seen a very high rate of take-up among those who already have their properties on the market."

Michael Luck, managing director of estate agents Slater Hogg & Howison, added: "There is a positive angle to this in that it will assist in encouraging buyers to look at property. Buyers will perhaps be more inclined to look, knowing that if they want to proceed there is complete transparency.

"The down side is that, in a fragile market, it could stop some people putting houses on to the market, given the extra cost."

But Mr Luck added: "It might not be a bad thing if it prevents some speculative sellers coming on the market - those who are not committed to selling but are seeing what their house might fetch."

Another charge levelled against the single survey system is that buyers would end up having to commission a survey anyway in order to obtain a mortgage from a bank. Despite some reluctance from lenders, most appear to have agreed to accept the information provided by surveyors producing the home reports will be acceptable for the purposes of a mortgage, providing the surveyor is recognised by the lender and the report is not out of date.

Kennedy Foster, policy consultant for the Council of Mortgage Lenders in Scotland, said, with the exception of Barclays, "all the big banks" had signalled they would accept the home reports as a basis for mortgage valuation.

What is still unclear, he said, is the price buyers will have to pay to update valuation reports if they exceed their shelf life, which most regard as three months. "There is nothing about the shelf life of valuation, so it will ultimately be decided by market forces."

Mr Foster said there could also be circumstances in which someone selling their house decided not to commission a generic mortgage valuation, which is used by lenders as the basis of their mortgage assessment, alongside their home report. "Our advice would always be to have a generic mortgage valuation because potential purchasers could be put off by the prospect of having to get a further valuation done for their bank."

A key question is how home reports will affect the delicate relationship between surveyors, the estate agents and lawyers acting for sellers and purchasers. A prime reason for proposing single surveys was the "offers over" system was felt to exacerbate the inflated prices buyers were prepared to offer to secure the deal.

Mr Cullens is among those who believe having an independent survey will introduce greater clarity and boost the market: "It will bring confidence back into the market. It will bring transparency for buyers and sellers who will have access to an independent valuation arrived at following a survey which will look for defects. It will also contain an energy report which, given the amount fuel bills have gone up by in recent times, will be very important."

Others were sceptical as to whether home reports really would provide a stable point of reference for buyers or sellers. "It doesn't really give clarity," said Mr Luck. "The concept people struggle with is that they are selling. You may have something in writing saying that's what it's worth, but of course a house is only worth what someone is prepared to pay for it on the day."

John Kelly, at Corum estate agents, said there is a natural conflict between estate agents and surveyors. "Surveyors are producing a report which is a technical appraisal of a property. Estate agents will still be commissioned to market the property with a view to getting the best price. None of that is going to change," he said.

Iain Gillies, former head of RICS residential facilities who sat on the Scottish Government's home report group, admitted success is dependent on goodwill. "Some solicitors have said they wouldn't advise clients to rely on the valuation contained in a home report. I think that's wrong, given that surveyors are trained to value a property in an independent manner. It's going to be tough but I'm convinced surveyors are ready for this."

A spokesman for the Scottish Government said: "It is essential that those buying a house receive the best information possible. As nine out of 10 sellers are also buyers, they will benefit, too."

Home reports will contain three basic elements:

A single survey

This will include information on the condition of a property, a market valuation and basic accessibility information. The seller can also request a generic mortgage valuation report which can be used by lenders as the basis for deciding whether to give a mortgage.

An energy report

Under European legislation, everyone selling a property as of next year will have to provide an energy report, similar to those already in place on white goods. This will include things such as carbon dioxide emissions and the energy efficiency of a home.

A property questionnaire

Completed by the seller to include information such as council tax banding, car parking and factoring arrangements.

Cost

The Royal Institute of Chartered Surveyors in Scotland has estimated that home reports will cost between £500 and £700, with smaller homes and flats paying less. Anyone who attempts to sell a property without a home report will be liable for a £500 fixed-penalty notice fine.

Unlike the previous system, in which the onus to have a survey done fell on the buyer, the cost of home reports will be borne by the seller. Purchasers may have to commission a further valuation if demanded by their bank.

What is the shelf life of a home report?

There is nothing in the legislation that sets a specific shelf life of a home report so this is likely to vary according to market conditions. The Council of Mortgage Lenders says most banks regard three months as a legitimate shelf life. If sellers take their property off the market for up to 28 days, they will not need a further report and surveyors should be able to update a previous report.

Exemptions

New homes, newly converted homes and seasonal holiday homes do not have to provide a home report. There is also an exemption for commercial property transactions, right-to-buy sales and properties that are unsafe for habitation.

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