Property professionals are well aware of the case for commissioning a survey when purchasing a property. However, numerous research reports tell us that consumers seemingly aren’t doing so – with the majority of today’s home buyers relying on the lender’s valuation to tell them about any problems or defects that could end up causing them problems at a later date, potentially costing them £100s, if not £1000s.
So why do so few buyers choose to commission a property survey? Research by MORI for a Government working group, and by Which? found that while 80 per cent of home buyers say they do (or would) procure a survey when buying a home, only 18 per cent actually do so. However, the main reason for the discrepancy in these numbers is not because when it comes to parting with their cash the majority decide that they’d rather not pay out, but because in most cases, buyers incorrectly believe that their lender’s valuation is a survey – which of course it is not.
Far from being a conscious decision not to commission their own, more in-depth survey, it seems consumers are blindly pressing ahead with their purchase, in the majority of cases under the misguided assumption that the lender has got the survey sorted and there’s no need for anything further to be done on the matter. This needs to change – but how?
It’s true, less than 20 per cent of prospective homebuyers commission an independent report on the condition of the property they are hoping to buy.
It is also a fact that a significant percentage of purchasers who do proceed without any form of condition report encounter unforeseen and often costly repairs after moving in.
Ironically the average homebuyer has more information about the contents of a packet of crisps from the information on the back of the packet, than he or she does about the contents and condition of the property they are taking on.
In an earlier edition of PROPERTYdrum, a report stated:
Almost half of homeowners living in Victorian properties converted into flats will consider a new build next time they buy, according to a report commissioned by Cathedral Group and United House and prepared by 20/20 Research.
Its findings showed that owners of older properties are forced to fork out thousands to cover necessary repairs and replacements within a few years of moving in. On average each paid out £8,000 to maintain their home during their first five years of owning the property.
The survey revealed the most common bills for those living in Victorian conversions were for bathroom and kitchen replacements. More than 22 per cent needed to replace one or the other, or both, within five years. Other expenditure included repairing or replacing single glazed sash windows (21 per cent), struggling with boiler faults (19 per cent) and making necessary roof repairs (8 per cent).
Purchasers buy with their hearts, not their heads… and only a fatal flaw will make them walk away.’
The result of this is inevitably a dissatisfied consumer, and one who is looking for someone to blame for these unexpected bills. But who to blame? The Lender’s Valuer who produced the mortgage valuation? Yes, they often do, but most purchasers do not understand that the report is carried out for the lender not the borrower, and it is a valuation, not a survey.
The Lender then, for not telling them to get an independent report? Well actually they do, or the mortgage adviser does. But this is often dealt with as almost a throwaway line as part of the far wider application process and the vast amount of information that the applicant has to receive to satisfy FSA requirements and to “treat the customer fairly”.
Themselves, for not having sought out that advice? Possibly, but with so much going on during this emotional and time consuming process, and because the heart rules the head when it comes to homebuying decisions, there is often an assumption that ‘it will be alright’.
Their conveyancer? Yes, he has an obligation, under the rules contained in the CML Lenders Handbook, to advice their client to seek independent advice on condition before committing to purchase. But, rather like the discussion with the mortgage adviser, there is a lot for the consumer to take in, and the suggestion that they should go out, probably at a fairly late stage in the process, to commission another report and incur additional cost, is often skirted over and ignored.
The estate agent? Perversely the agent will often be seen as a villain here, in not telling the buyer to go and seek independent advice. We all know that many customers assume, wrongly, that the estate agent is acting in their best interest, rather than in the interests of those of his or her client – the vendor – who is, after all, the one who is paying the bill.
There is also an underlying concern on the part of many of the above agencies that, by encouraging the purchaser to obtain a report, they might be putting the purchase, and therefore their commission, at risk.
But there are thing happening in the market that could affect the status quo, and increase the take-up of such reports.
Firstly, a number of lenders are considering separation of valuation from condition reporting, and releasing applicant details to panel valuers to enable them to market condition reports.
Also, conveyancers are becoming increasingly challenged on whether, by not more robustly following the CML requirements pushing their clients to seek independent advice, they may be in breach of the ‘treating customer fairly’ (tcf) obligations.
Because there is now an expanding range of survey products out there to meet consumer needs, local surveyors are becoming far more pro-active in marketing condition reports, increasing consumer demand.
So do these trends really threaten sales? As stated earlier, the majority of purchasers base their decisions on their hearts rather than their heads. They are buying a dream, and it will take an awful lot to turn that dream into a nightmare.
The reality is that:
- Buyers want to buy
- Only a ‘fatal flaw’ will make them walk away
- Therefore the worst-case scenario is renegotiation of the price. This potentially presents opportunities for contractor referrals to assess the true cost of reported defects
- By acting as ‘honest broker’ in advising a buyer to seek appropriate independent advice before buying, the agent is building a trusted relationship with both parties, which potentially leads to further recommendations and instructions
- As a greater proportion of buyers start to require independent advice, it is surely better from the agent’s perspective that they are able to manage the process by providing referrals to trusted professionals operating in their area with whom they can rationally discuss the content and implications of a report, rather than taking pot-luck on the outcome of a report from an unknown source
The RICS Home Surveys Suite offers a range of reports designed to provide an appropriate level of advice depending on the customer’s needs and the age and type of property. All are designed to be objective and balanced, using a ‘traffic light’ flagging system to allow clients prioritise condition issues. These reports will also cover issues around risk, both to the property and to occupiers, and provide information to assist legal advisers to make appropriate enquiries.
Properly managed, agents have nothing to fear from purchasers being properly informed about the home they are intending to buy and, particularly in the light of forthcoming OFT Guidance on the Consumer Protection Regulations, are actually covering their own responsibilities in terms of their duty of care to that purchaser, who may one day come back to you as a seller.
Who’s responsible for educating buyers?
While we are increasingly aware of the concerns around the lack of surveys being commissioned by today’s buyers, the question remains, whose responsibility is it to educate the buyer?
Should it be the Government, through some form of awareness raising campaign or newly introduced mandatory requirement? Or the lender, who should be flagging up to its borrower that the valuation they have sent through, is not and does not constitute a full condition survey?
Perhaps it should be the mortgage broker, who will be in regular contact with the borrower in the early stages of the process and could highlight the merits of a survey when they make their recommendations? Or indeed the conveyancer, who upon appointment should ask the question and ensure their client knows the difference between the mortgage valuation and a proper survey of the condition of the property? Or what about the estate agent, who will be dealing with the buyer first hand and could flag this up to them early on in the process?
Well, a recent survey of our members suggests that the majority of residential property surveyors believe that the responsibility should lay with the conveyancer. While some members also felt that the lender and the mortgage broker had a role to play in educating the consumer, it was clear from our quick fire poll that very few believed that it should be the responsibility of the estate agent to make sure that the buyer is aware of the survey options available to them – a conclusion that I strongly support.
Don’t blame the agent
When discussing this very issue, I regularly hear people suggest that it should be the agent, dealing first hand with the buyer, who should be advising them about the survey options available to them, but this just doesn’t make sense. Those that try to place the responsibility at the door of the agent totally misunderstand the very premise of the estate agent’s role. Of course you are there to assist consumers with the buying and selling of a home and will be in regular and typically direct contact with both the buyer and seller throughout the process. However, what needs to be remembered is that first and foremost, your responsibility lies with the seller, not the buyer. After all, it is the seller that will have instructed you and the seller when the transaction completes, that will be paying your fee. Some people in our industry seem to forget that as an agent you are working on behalf of the seller, so to suggest that you should recommend to a buyer that they purchase a survey report, which they could later use to pull out of the transaction or negotiate down the price they had previously agreed is ludicrous.
The role of the conveyancer
In contrast, the conveyancer will be working on behalf of the buyer and as such, is in a much better position to be advising them on matters relating to surveys and the options available. When referring to the Council of Mortgage Lenders (CML) handbook, it appears that this too supports the premise that it should in fact be the conveyancer that takes responsibility for advising the buyer of their options, as lenders quite cleverly pass the buck.
There may be defects which are not revealed by our valuation.’
The Council of Mortgage Lenders handbook includes the following clause:
4.4 When a home condition report is not provided we recommend that you should advise the borrower that there may be defects in the property which are not revealed by the inspection carried out by our valuer and there may be omissions or inaccuracies in the report which do not matter to us but which would matter to the borrower. We recommend that, if we send a copy of a valuation report that we have obtained, you should also advise the borrower that the borrower should not rely on the report in deciding whether to proceed with the purchase and that he obtains his own more detailed report on the condition and value of the property, based on a fuller inspection, to enable him to decide whether the property is suitable for his purposes.
This clearly places the onus on the conveyancer to ensure their client understands that a lender’s valuation is not a survey, while the lender alleviates itself from all responsibility. However, this message doesn’t seem to be getting through and it seems that conveyancers may be exposing themselves to potential risks in respect of this obligation.
A suggested way forward
At RPSA, we have recently tested a new approach with conveyancers. To ensure that clients make an informed choice about obtaining a survey we have been urging conveyancers to include the following three bullet points, immediately above where the client signs the letter of engagement, requiring the client to tick one of the following boxes,
- I will arrange my own survey (I understand that my lender’s valuation is not a survey)
- Please arrange a survey for me
- I do not want a survey
The simple introduction of the above text has already proved an effective way of ensuring that buyers are aware there is a difference between a lender’s valuation and a survey. By including the suggested lines above, conveyancers can demonstrably discharge any responsibility that they have in respect of the lenders handbook, while ensuring that their customer is better informed.
For those likely to be recommending a survey supplier to the consumer, there is lots of choice out there. At RPSA, we have spent considerable time developing our Home Condition Survey (HCS), which protects conveyancers, while offering consumers a thorough, yet clear and concise report on their future home. The HCS is a product provided by the Surveyors and Valuers Accreditation (SAVA) and the Building Research Establishment (BRE). The Home Condition Survey offers the following features, which are unique in the market place:
- Complete assurance that the survey is carried out by an accredited surveyor
- No concerns in respect of PI cover – held by SAVA or BRE
- A free consultation with the surveyor
- Survey is held centrally by SAVA or BRE and a copy can be retrieved and made available to the consumer at any time All surveys are subject to a quality assurance regime
- All accredited surveyors are subject to a quality assurance regime
- Survey meets requirement of clause 4.4 of the CML Lenders Handbook
The product provides complete peace of mind for consumers and conveyancers, while offering a comprehensive condition report that will allow the buyer to make an informed decision about their future purchase. It’s written in a jargon-free style with ample photographs to provide clear and concise information about the structure and condition of the property. RPSA is proactively promoting this condition survey to consumers and in turn, we expect this to help raise awareness among buyers of the various survey options available to them.
SO WHAT NEXT?
We undoubtedly still have a long way to go to educate buyers and the wider public, firstly about the different surveys available and secondly about the important information they can provide. However, the feedback from our membership is clear, it should not fall to the estate agent to educate potential buyers about their survey options. Instead, we believe that this responsibility should lay with the conveyancer and as such, we will be continuing to work with the conveyancing community to encourage them to take on this responsibility and advise their customers accordingly.