The house buying process: on the road to nowhere?
In the first of our quarterly roundtables, The Negotiator brings together a panel of the housing market’s experts to create a blueprint for the house buying process of the future.
A market downturn presents the perfect opportunity to analyse the house buying process and identify where there is the greatest need for improvement. Thus, The Negotiator gathered a cross-section of leading representatives from each of the groups involved in the house
buying process, to create a blueprint for a new and improved format for the future. The Council of Mortgage Lenders declined to attend.
Roundtable participants:
Clare Bettelley, editor of The Negotiator
Henry Pryor, industry pundit
Helen Davies, chair, Law Society Regulatory Affairs Board.
James Sherwood-Rogers, managing director, Landmark Legal.
Tom Parker, chairman, Association of Home Information Pack Providers.
Miles Shipside, commercial director, Rightmove.
Nigel Farren, managing director, Homes Matter.
David Dalby, director, Residential faculty, Royal Institution of Chartered Surveyors.
Peter Bolton King, chief executive, National Association
of Estate Agents.
Ian Potter, head of operations, Association of Residential Letting Agents.
Christopher Lacy, director, Savills.
Each attendee was asked to identify their key requirements for the blueprint, which formed the basis for the subsequent debate.
Christopher Lacy:
We need a robust conveyancing system, which is cheap and effective, not one that is a cheap and as swift as possible but with risk, and it needs to apply to all properties. And we shouldn’t rely on an insurance-backing process.
Wholesale change to the house buying process is not the answer; I think we can sort this out with modern technology and adjustments to the current system. We need to educate sellers and buyers about the buying process and we can do that in advance through good clinical practices, particularly on leasehold. People need to understand what leasehold is all about.
We should also encourage sellers to get a Home Information Pack-type document at the start of the process, but it should be voluntary. And we must maintain first day marketing. It is the lack of first day marketing, which puts the pressure in the system surrounding HIPS, and all the collection of all the documents.
Next, we need to nail the local authorities to provide official searches online, swiftly and cheaply. And we need legislation from the Government on the charging of leasehold and management information on leasehold.
E-conveyancing is essential to ensure the conveyancing process can be done electronically, and we need some form of deposit on offer, or lockout agreement.
That said, I am ambivalent because all the lock-outs I have done in the past have bought as many problems as they have solved. It is a difficult issue.
Finally, we need to retain Caveat emptor. There has been a move to ditch it, but if you do you will remove the need for the buyer of the house to take responsibility for his purchase. And we need clearly understood Codes of Practice, as well as the licensing of agents, which is best done through self-regulation rather than by being imposed, plus a robust redress system.
Ian Potter:
One of the problems we face on both sides of the buying and selling process is how to get the consumer to read the information we are providing. There is a lot of information out there, but do they read it? I think we should look at how we educate the public in social and
financial matters.
I wonder if there is an opportunity through the education system for children to stay at school a year longer.
Peter Bolton King:
What upsets people is uncertainty in the process. We have talked about this for umpteen years and there is no easy answer if we are not suddenly going to throw away the legal system, which has been in place for hundreds of years, and move to an American way of putting everything upfront, backed by insurance as we have talked about.
I totally agree on e-conveyancing and it appears that it is back on the agenda at the Land Registry, which is excellent news. Education is also important. We are useless as an industry at telling people what we do and what should happen in the process, and setting out expectations. I think it is one of the things the new standards board could get involved in, in trying to bring the industry together and act as a conduit to help better educate the public.
In terms of information upfront of the buying process, we have never been against that, and I agree it should be voluntary. As for local authority searches, I see major problems for years to come. But you don’t need them as part of the upfront pack.
A big problem with regard to leasehold information is that without primary legislation the issue is not going to be sorted. If we go down the route of a service questionnaire it will provide some information, but whether anyone will read it is debateable.
One of the things we have failed to do when we talk about deposits, lock-out agreements, or pre-contract agreements of some description, is consider what is already in place around the world, rather than re-inventing the wheel.
On Caveat emptor, a recent reminder from the Office of Fair Trading states that the new Terms of Unfair Contract regulations appear to suggest that if you know there is something wrong with the property you need to divulge it, and that totally goes against Caveat emptor, so we have some concerns there.
David Dalby:
Consumer information is absolutely vital. And in order for the consumer to have better information, there needs to be better standards in place across the industry. The average consumer moves house every 10 years, or even more than that, and therefore they are not aware of the process since it has changed since the last time they were part of it.
And one of the things I would hope raising standards will achieve - and regulation is ultimately the route to get there - is the expectation of good practice among estate agents.
As for HIPs, how do you make them fit for purpose? It has to be about the provision of the right information, in the right place and at the right time. I don’t mind if searches are day one or half way through the process. We have to make better use of the technology out there with electronic searches, e-conveyancing, the Chain Matrix, and in terms of communicating with the public, in a way it can understand and at the point it needs it.
Nigel Farren:
We have to do whatever is necessary in the consumer’s best interests. We have to create a technology platform that all industry stakeholders have access to, be it conveyancers, estate agents or surveyors. We have to reduce the amount of paper, which is flying about in the system - we need certainty and transparency. We can’t account for people pulling out of a sale or purchase, but we can account for the technical fallouts.
I am a strong believer in the Home Condition Report. It is very important for buyers to have information upfront so they can make a more informed decision. An exchange-ready HIP is also important, as are Energy Performance Certificates, which are the only documents worth the paper they are written on. There are over one million EPCs issued and there will probably be one million issued next year, but there is urgent action that needs to be taken with EPCs and their recommendations.
If we look at conveyancing, the ideal solution from a consumer’s point of view is for there to be just one conveyancer involved in the whole
transaction because that would reduce costs.
Some would say HIPs are an unnecessary cost, but if you look at the cost of a HIP of less than £300 against the average estate agency fee of £3,000, the HIP in itself is not a huge cost in the sale process. So, we need to improve speed, certainty and transparency in the process, and reduce the costs built into it. We need unity of action.
Henry Pryor:
My contribution deals with the front end of selling and letting properties and the rationale, which revolves around licensing every estate agent and allowing the professional bodies to provide the qualifications, which would be recognised by the licensing body where appropriate.
I would also like to see estate agents moving from being agents to being brokers. An awful lot of dissatisfaction on the public’s part is based around the reliance on a relationship with someone with whom they will divulge their inner most secrets about where their money is coming from, and who will use that information against them on behalf of the seller or landlord.
I would like to see licensed estate agents acting as stakeholders and taking a 0.25% deposit from the buyer and seller, held on the basis that the contract has to exchanged within 14 working days of a sale being approved.
I would chuck HIPs out and instead encourage agents to do everything they can to prepare the necessary documentation before two parties commit themselves to vast expense and heartache.
Helen Davies:
I agree that clients don’t all have the same objectives and that we recognise that in the information we provide for them. Some people will exchange in a few days and some don’t, so we ensure that information is in a way they can make use of it. I want sellers engaged at an early stage, so the preparatory work can be done and lawyers signed up to good practice standards, which include not just pulling the information together, but checking it before someone else can identify a problem.
We would take out the search from the HIP so the buyer is in control of the searches that they want.
I’m not enthusiastic about insurance-backed solutions because the problem with that is in explaining the risk to the person on the street who moves house every 10 or 20 years. But I agree with the points on the pressure needed on local authorities for local searches and e-conveyancing.
Tom Parker:
The HIP needs to be improved upon, which is not difficult - it can cost £10 for a legal overview, which would highlight all the issues of the searches, and we could text those to a buyer of the property.
HIPs are all about saving time. They reduce the transaction process by 10 to 12 days and there are some real benefits. I appreciate if you are an estate agent you don’t want to tell the buyer about any problems with the house, but they are going to surface anyway.
We are arriving at a conveyance-ready rather than an exchange-ready HIP, because there will always be an additional question the lawyers will come up with at the end of the process, often at the behest of the client who is not ready to buy and wants to delay.
We also need more consumer education surrounding EPCs. I agree that the only thing people look at with HCRs is their fridge magnet, and the only reason people look at that is because it is going to save them some money.
We also need a proper report, and I know the Royal Institution of Chartered Surveyors is looking at a revised HCR, which would replace the home buying report or be an amalgamation of the two. We will wholeheartedly support the valuation part of the HCR, providing it is ready to be passed up to the valuer at the appropriate point. The report would give people an overview of a property and a legal overview of what they are investing in.
Miles Shipside:
It is tricky to say what is in the best interest of the client because there are elements of HIPs and EPCs, which are in the best interest of clients, but potential buyers pay very little interest in them. So the issue is about increased financial benefits or reduced costs - there is more pressure to reduce costs in a slow market. So perhaps Automated Valuation Models, e-conveyancing and lenders could help to reduce costs and speed up the house buying process. As for HCRs. ironically, some of the resistance to them was the potential for a fall in sales volumes, but we have ended up with that outcome anyway.
I am not sure about the legislation surrounding HIPs. Several organisations felt investment in HIPs was a bad idea – we invested £8m and wrote it off, which was fortunate as we were going to spend £22m. I have major concerns for anyone who is going to rely on legislation for change, particularly given that the Tories say they are going to bin HIPs anyway.
As for EPCs and grading, I thought mistakenly that buyers might be bothered about higher grading and sellers about increasing their grading from an F to a D, but it is impossible to get from one grading to another and costs so much to the point that it becomes ludicrous to try to do so. So yes, on fridges we look for an A rather than a B, but by and large we should accept we can’t get an A grade.
Debate
Clare Bettelley:
We are trying to create a solution for a wide range of properties and, equally, a wide range of consumers, and I think it is important to remember that the consumer is at the heart of it all. Let’s start with client expectations about agency standards, and agents’ competency.
Christopher Lacy:
We all talk about consumers and in the main we are thinking about buyers, but the consumer is just as likely to be a seller and most buyers are sellers as well, so we have to be careful in talking about the consumer.
The buyer has a different agenda to the seller. The seller wants to get on the market as quickly as possible and achieve the best price for it. The buyer has a different view; he wants to buy it on his terms, safely without risk.
Henry Pryor:
The issue is most people go into the house buying process thinking the agent is looking after there interests and they are to a degree. But they are not the buyer’s agent; they are the seller’s agent. If people understood the agent is working for the other side there would be a lot less misunderstanding about the process.
Miles Shipside:
We need a change in the process to achieve this, or agents will continue to pretend to be friends with both parties. But it is idealistic to think we will educate people to trust the estate agent because they want the house, and they want to get on with them.
Peter Bolton King:
I agree with Christopher about the way sellers expect to be treated, which is totally different when thevery same consumer puts their buyer hat on. They become a totally different character and can gazump someone and be quite happy to do so, yet are astounded if someone tries to do the same to them as a seller. We talk about estate agents’
behaviour and standards all the time, but there is a fundamental problem with consumers’ behaviour too.
David Dalby:
I agree. We have to be conscious that we talk about the rights and needs of the consumer constantly, but the process brings out the worst in human nature. You have to live with that fact. I applaud the broker concept in some ways, but have some serious doubts about how it would work. It would muddy the waters in that no-one would be sure about who is on whose side when dealing with a particular transaction, and I am a bit concerned about who is actually going to pay for it.
Henry Pryor:
It seems to work in other parts of the world.
Peter Bolton King:
It doesn’t work in Germany very well. In the US you will very rarely get the same person dealing with the both sides of the transaction.
Nigel Farren:
It is a great idea, but to make it work you would have to go completely back to the drawing board. Then again, in some ways wiping the slate clean and starting again would be a nice scenario.
Peter Bolton King:
But it will cost the consumer.
Miles Shipside:
I would just concentrate on speeding things up, since buyers and sellers are always going to fight and fall out and tell lies. We just need more up-front information and transparency.
Peter Bolton King:
There should be continued pressure on Government to give its blessing for the industry to regulate itself. I think we are also agreed that e-conveyancing and the Chain Matrix need to be expanded. And we are also agreed we need to help educate the public, although that might be a difficult thing to do.
Clare Bettelley:
What do you mean when you talk about a level playing field? Do we need a qualifications board and a standards board? And how would a standards board work?
David Dalby:
In an ideal world the trade bodies could do more, given that 30% of the industry is not signed up to any particular organisation. Those are the ones, which tar good agents with the same brush. You need to establish a set of principles and a Code of Practice - whatever you want to call it that sets out what the expectations of a competent, efficient estate agent or letting agent are. It also gives you a playing field against which any Ombudsman Scheme can judge the performance of those agents, whether a member of an organisation or simply licensed to practice.
Peter Bolton King:
That means you are asking for them to act as a regulator and not simply a redress scheme.
David Dalby:
I am not asking them to be a regulator, I am saying that once we have gone down the regulation route, at least there is a level playing field as far as redress in concerned, so there aren’t inconsistent results coming out of any Ombudsman Scheme.
Clare Bettelley:
Would licensing help agents tackle this issue?
Peter Bolton King:
It has been made very clear to us on many occasions that there is no appetite for Government-led licensing, which is why we and the Law Society have been working very hard to try and think of ways by which we can come up with some form of industry-led licensing, but that will only work if the Government, in some shape or form, gives it the teeth and the requirement.
South Africa this year is moving from a requirement for agents to have between one and three years’ industry experience before they can attain a license to them first having to attain a qualification.
If I was running a firm to protect the public I would want to know that every single person coming into the profession has at lease accrued a basic knowledge of the fundamentals.
David Dalby:
I have just come from the National Conveyancing Congress where Owen Inskip [property expert and Conservative Party adviser] said very clearly he thinks it is not a bad idea in principle, but he knows he hasn’t got a hope in hell of convincing [leader of the Conservative Party] David Cameron.
Christopher Lacy:
There is a difference between competency and acting on a Code of Practice. Unless you have a qualification you are not going to get competency. Acting on a Code of Practice does not make you competent - for this thing to work properly, not only do people have to be licensed, but qualified to be licensed rather than just backing it under a Code.
David Dalby:
You end up with a virtuous circle of firms competing on better service.
Henry Pryor:
And justifying a higher fee as a result.
Ian Potter:
If you can improve your standards and your customer service you should get more business out of it and an increase in profit.
Clare Bettelley:
I think we are agreed service standards need to be in place and they need to be high, but how do ensure the standards are there in the first place? Is a qualification really the answer?
Christopher Lacy:
By being qualified you are going to ensure you are competent before adhering to a Code of Conduct.
Tom Parker:
It is a method of measuring that they actually know what they
should be doing.
Henry Pryor:
I don’t think you have to be Corgi-registered to be a plumber - someone can come and mend my washing machine without that standard.
Going back to Caveat emptor, I don’t think it is our job or in clients’ interest to try and nanny them through the whole home buying process. We want to inform them so they can make an informed decision.
David Dalby:
It is the biggest transaction most people have in their lives, so how realistic is it that that pivotal part of it is uncontrolled, to all intents and purposes?
Clare Bettelley:
Isn’t nannying exactly what is needed at the lower end of the market?
Henry Pryor:
They need to be informed, but I don’t think they walk into an estate agent and assume they don’t have to worry about anything because everything will be picked up and checked by the person they are dealing with, who is licensed and controlled and regulated. I object to this idea of vulnerable consumers.
Peter Bolton King:
I think you are on your own with this one Henry.
James Sherwood-Rogers:
But the worry surrounding the process and the legal side of things is solved by conveyancers and lawyers, not by regulating estate agents.
Miles Shipside:
I think that is idealistic.
HIPs
Clare Bettelley:
Let’s move on to HIPs. Do we agree that it is important to provide asmuch information as possible to consumers at the outset of the house buying process?
Tom Parker:
When do you want it to be available?
Christopher Lacy:
As soon as possible. The search element is the big issue because it is client sensitive.
Tom Parker:
But are you all telling me seven days is absolutely critical?
Peter Bolton King:
Yes.
Tom Parker:
Have you any facts and figures that show that seven days will make any difference in the sale of a house?
Christopher Lacy:
What you don’t understand is from an agency point of view, is if first day marketing ceases every agent in the country is going to be breaking the law every day of the week.
Tom Parker:
There is nothing wrong with making a phone call to inform clients about a suitable property without disclosing all its details; it doesn’t constitute marketing.
Christopher Lacy:
It does.
Tom Parker:
If I phone up and say I have a property coming up in seven days’ time, I do not break the law.
Clare Bettelley:
Let’s assess exactly what we so far agree will improve the house buying process.
Peter Bolton King:
I think we are all agreed the pressure must be on getting all local authorities to become as good as Wakefield supposedly is, offering cheap, quick local searches - forget when you want them. That has to be the number one requirement to speed up the house buying process.
The second thing I think we agree on is, forget whether you call it qualification or minimum standards or whatever, there needs to be better control of estate agents and I include letting agents in that, with teeth.
A prime example of the importance of this is highlighted among our members in the case of HIPs. One of our members in Wales is having a hell of a battle telling clients they need a HIP, and that it has to be ordered before they can put their property on the market.
Meanwhile, their competitors down the road are telling client not to worry about it nobody is bothering to check. That is going to catch them out sooner or later. It is this lack of a level playing field across the market that is a major problem.
Clare Bettelley:
Are we all agreed we need some kind of HIP upfront?
Peter Bolton King:
As long as it is voluntary.
Tom Parker:
No, because if you don’t legislate to have a HIP no-one will have one. Everyone here knows that is the case.
Nigel Farren:
It is down to estate agents to convince the consumer of the importance of those documents.
Clare Bettelley:
I’m not sure that’s realistic at this point in time. What information should be included in the HIP?
Nigel Farren:
Upfront should be an exchange-ready HIP on a voluntary basis and a
voluntary HCR.
Christopher Lacy:
Ideally you would want a proper enquiry form, but a more robust one because the ones we are looking at are toothless. I don’t believe we need HCRs as they are not mandatory. So we need a questionnaire, leaflet details and I think there should be some form of legal document.
And if I am buying a leasehold property, it is pretty fundamental I need that information right up front too.
Peter Bolton King:
Agreed.
Clare Bettelley:
So, we are agreed we need a questionnaire, legal details, searches and leasehold information upfront of the process?
Henry Pryor:
Searches are optional.
Peter Bolton King:
Remember, the Government thought it was a good idea in the draft HIPs legislation to have a mining search on every property.
Nigel Farren:
Estate agents should recommend what searches are needed, and that information should be provided.
Tom Parker:
I’m not sure that the estate agent should be recommending searches. It should be the conveyancer.
James Sherwood-Rogers:
Estate Agents are going to be liable for any search issues. I think information upfront is a good thing, but if you leave it to estate agents to organise it will never get done because their job is to make the property look as good as possible and sell it.
Tom Parker:
But searches only last six months.
James Sherwood-Rogers:
I disagree. The amount of information in a search that changes over time is absolutely minimal.
Financial commitment
Clare Bettelley:
Let’s discuss lock-out agreements. How can we encourage some kind of commitment to the home buying process?
Christopher Lacy:
I am still intrigued by Henry’s idea about both people paying 25% upfront.
Henry Pryor:
You can only legislate; you can’t ask people to do it. But rather than everyone paying £300 for a HIP upfront, why not ensure they have everything they need before they commit formally to making an offer? If the deal doesn’t go through because the purchaser changes their mind, the vendor has some redress and the purchaser has some if the vendor goes with someone else.
Peter Bolton King:
What happens in a chain? Does everyone lose their deposit?
Christopher Lacy:
And who adjudicates?
Peter Bolton King:
I have used lock-out agreements many times before on an individual basis, but they are a big issue.
Tom Parker:
There is nothing to stop it happening now. If I sell my house, I can say these are the terms and you have to deposit with my solicitor.
Christopher Lacy:
But the legal complexities are huge.
Lawyers
Clare Bettelley:
What about the relationship between agents and lawyers. How can it be improved?
Helen Davies:
The relationship between agents and lawyers needs greater communication and we are looking at standards for lawyers so you can be clear about what you can expect.
Clare Bettelley:
What are the main deficiencies?
Helen Davies:
The thing that makes me look incredibly inefficient is the way agents write to clients and they ring me three days later and it is the first I have heard of the case. Or the client rings and says I have agreed to buy a house and given the agent your name, but by the time you have all the agent stuff together you are at least 10 days down the line, so you start off on the back foot. We tell our local agents to instruct us at the beginning if they are going to instruct us anyway. We are not going to charge them if they change their mind.