It’s five years since Home Reports were introduced in Scotland. Driven by an aim to provide clarity regarding the condition and value of a property to homebuyers, upfront, Home Reports have certainly made their mark.
Before Home Reports came into force, the onus was on purchasers to commission their own valuation on a property. This meant that multiple valuations were carried out on properties by potential purchasers, a costly exercise if an offer was unsuccessful.
With the arrival of the Home Report legislation, this focus shifted to the seller and a Mortgage Valuation Report was required, in addition to a Single Survey that details the condition of the home, an energy report, plus a property questionnaire that provides details on council tax banding, parking, any works undertaken and other useful information related to the home.
By moving responsibility from buyers to sellers, the aim was to help support first- time buyers, reduce multiple valuations and help to improve overall housing stock, as sellers may be encouraged to make repairs highlighted in the condition report, to enhance the market value of the property.
Since the arrival of Home Reports however, there has been much change in the Scottish housing market. While the Home Report initiative was designed in a period of market growth, they came in when the market was slowing, and faced criticism as to the impact they were having on any already depressed market. The cost to sellers to bring a property on the market was mooted as a barrier by some, while the three-month window in which the valuation remained valid, meant that additional valuations were required for those homes that did not sell within this timeframe.
Now the market has again turned and transaction numbers are improving. Home Reports are providing buyers with far greater transparency, which helps support their decision making process and ensures they enter into what is likely to be the largest financial transaction of their lives, fully aware of the property’s value and condition.
THE CURRENT VIEW
At the five-year point, the Scottish Government launched a comprehensive review of Home Reports to look at their impact and how they work in the current market. The consultation period for the review closed at the end of February and the policy review is expected to conclude by the end of the year.
It will be interesting to hear the results of the review to fully understand the role Home Reports are today playing in delivering complete transparency to homebuyers. Will they be adapted in any way? Will any new elements be added to provide even more insight, such as more detailed locality or environmental reports, or a central register of Single Surveys?
We will watch this space with interest given the activity we have seen south of the border in England and Wales around marketing property as “conveyancing ready” and also the potential for systems based solutions to issues of transcription to significantly reduce overheads for surveyors and ultimately, costs to consumers.
In the meantime, an independent property valuation inquiry reported that Home Reports could prove beneficial also in England and Wales. This followed a public consultation into the operation of the valuation market by RICS in 2013, and one of the recommendations within the report explores the possibility of introducing Home Reports in England and Wales. It will be interesting to see whether this progresses given the furore over Home Information Packs, however I’m sure the outcome of the Scottish Government’s review will have some influence on policy for the rest of the UK.
DO THE ‘AYES’ HAVE IT?
Ian J Fergusson BSc FRICS, Managing Partner, J & E Shepherd: “When Home Reports launched there was a lot of scepticism, particularly as it coincided with the market crash. A key premise has always been to provide quality survey advice; this is still underlying and gives homebuyers much better informed advice, upfront. Tradition- ally, 90 per cent would incorrectly rely solely on the mortgage valuation. Five years on I believe the consumer is now more used to Home Reports – purchasers are benefiting from the condition report and can make more informed decisions. Home Reports provide greater visibility, purchasers are buying with their eyes wide open.
In terms of its role in helping to improve housing stock, I think it has started to make a difference. In my opinion, a property with defects that has a ‘code 3’ rating, is likely to reduce the asking price, and so will sell for less. If repairs are within the financial reach of a seller, repairs are typically undertaken as it makes for a more marketable property.
Looking ahead another five years, I believe Home Reports will still be in place. It is a professional product that carries merit and is dependable. The market is driven by buyers, and with the market improving, the true benefits of Home Reports will come through. Buyers can make value judgements based on the Home Reports, giving them greater confidence in the purchase.”
Ross Mackay, Convener of The Property Law Committee, The Law Society of Scotland: “There is no evidence in economic terms in relation to whether Home Reports have had a positive or negative impact on the housing market in Scotland. The original purpose of home reports was threefold: reduce the need for multiple surveys; improve housing stock; and address the problem of artificially low asking prices. In my view, Home Reports are not fit for purpose or of benefit post the property crash, as the cost implication for selling clients is not desirable.
Home Reports provide the benefit of cheaper costs for first time buyers, however in terms of the original aims, there is little or no evidence that housing stock has been improved.
In the next five years, the government should do a detailed cost benefit analysis with robust statistics. Removal of the valuation element would be an improvement, as this is often subjective.
In my view, Home Reports do not meet the stated objectives and are an additional burden, which do not justify their expense.”
Robert Fraser, Senior Property Partner, Aberdein Considine: “In general and very much on balance, Home Reports have had a positive impact on the housing market simply because purchasers now feel better informed about the condition of a property and more confident of the value.
In terms of the valuation, this is the most critical part of the report for most parties to a property transaction. For a purchaser, it is both the benchmark for what they should pay and the starting point for how much they can borrow. For a seller it is often a line in the sand below which they are unlikely to sell. For lenders, it is the fundamental upon which they will decide how much to lend on that particular property.
Two main issues prevail here. Firstly, there is a huge emphasis on getting a high valuation as a seller because most buyers and their advisors will concentrate on a percentage to value basis when deciding on what to offer for a property.
Secondly, for surveyors, it is much more difficult to value accurately before a property has been exposed to the open market compared to the pre Home Report position, where, in most cases the surveyor had an opportunity to see how the market had reacted to the property before placing a value on it.
The most critical aspect of the valuation is whether the lender accepts it. Regrettably this in practical terms is one of the major problems of the Home Report. Lenders in growing numbers appear unwilling to accept the mortgage valuation report and are asking for an independent survey.
Much will depend on the position adopted by lenders. If the current trend towards independent instructions continues then consumer pressure may result in a review of the legislation. Otherwise, a more detailed pack, with the addition of Property Enquiry Certificates, SEPA registration details, Land Certificate plans and description, is likely to emerge.”
Eric Curran, Managing Partner, DM Hall: “Home Reports have had a positive effect since their introduction. The opinion of Market Value has become clearer for buyers and sellers to make informed decisions. Market value is now transparent and by benchmarking Market Value, property price inflation is less likely to be fuelled. By asking for a financial commit- ment prior to marketing, the speculative seller, who was often simply trying to find out the ‘true’ market value of their property but had no real intention to sell, has been removed from the market place.
Home Reports could be simpler to digest by reducing the property questionnaire – often the reason for a delay in completing a Home Report. Perhaps the ‘repair category’ definitions could be clearer. Often purchasers view the Home Report as a guarantee against all other defects not reported or that no future repairs will be required to the property.
I believe housing stock has improved as purchasers are now engaging with the Home Report to repair property before marketing and purchasers are buying with the knowledge that repairs are required to certain elements of the property that were not highlighted using the old Mortgage Valuation to purchase property.”
Richard Groom is Product Development Director at Landmark Quest. www.questuk.com