There has been much negative comment in the Journal and elsewhere by prominent members of the profession that the implementation of the single survey concept under legislation will have a negative impact on the house buying and selling public in Scotland. I believe that these negative views are, to some extent, grounded on a misunderstanding of fundamental issues and that as a profession we should embrace the concept, not seek to undermine it. In this article, I have sought to deal with the background to the proposals and to answer the most common criticisms of the proposed new system.
The Scottish Executive’s Housing Improvement Task Force was established in December 2000 to undertake a comprehensive review of housing policy in relation to the condition of private sector housing in Scotland. In its final report, Stewardship and Responsibility, a policy framework for private housing in Scotland was outlined (at www.scotland.gov.uk/hitf). I chaired the sub-group of the Task Force that considered the house buying and selling process in Scotland. The sub-group created the concept of the single survey and I am unashamedly a fervent supporter of it being introduced by legislation. Why?
The proposal for a single survey arose after considerable debate and much evidence considered by the sub-group over a two-year period, culminating in the publication of our proposals in March 2003. It has to be remembered that the cornerstone of the remit of the sub-group was that buyers should have more meaningful information about the property that they are purchasing (a principle supported by the Society: Journal, April 2005, page 50). The principle is also supported by the Scottish Consumer Council. The requirement that purchasers should have more meaningful information was a specific direction from the Scottish Executive, rooted in their belief that more information was in the interest of the purchasing public. It has to be remembered that the principal objective of the single survey scheme is not, at its heart, to remove multiple surveys, but rather to ensure delivery of full information in a manner most appropriate to the Scottish market and that in a context in line with the information and evidence made available to the sub-group. It is, of course, a very important consequence of the single survey that multiple surveys will disappear (multiple surveys are a common and justifiable criticism of our current system) and the much criticised practice of low property upset prices will also be tackled. The Task Force commissioned a market report from DTZ Pieda which demonstrated that many purchasers, encouraged to view properties which were advertised at low upset values, incurred costs in valuation with no realistic prospect of purchasing the property. This practice is wasteful and, indeed, unfair. The single survey, including a valuation, will tackle the setting of low upset prices.
The DTZ Pieda report also demonstrated that the house buying and selling process in Scotland was generally well regarded by the consumer public. However, although the system worked well, purchasers had too little meaningful information (over 90% of the buying public commissioned valuation reports, not surveys), and the instance of multiple surveys, together with the setting of low upset prices were common criticisms of the system. These criticisms demeaned an otherwise well regarded system. Further, a large proportion of the buyers of property encountered substantial and unexpected repairs after purchase. In other jurisdictions the system worked better and the DTZ Pieda report also demonstrated that purchasers were prepared to pay a meaningful sum if they could rely upon a substantive survey report. It was clear that many buyers only commissioned valuations, not surveys, because they considered it could be wasteful if they were not successful in the purchase of the property.
The single survey concept arose from the ambition of meeting these criticisms and accommodating key outcomes of the market research. Alternative proposals were of course considered in detail but not preferred. The key question was whether or not it would be possible to have a survey commissioned by the seller, independently prepared by the surveyor, which could be issued to all prospective purchasers, with the successful purchaser relying upon the survey report and indemnifying the seller for its cost. The result would be meaningful information to all purchasers, who would start from a level playing field with a declared valuation, and multiple surveys and low upset prices would disappear. These results could be achieved in other jurisdictions; could we? We were under no illusion that any change to the system was fraught with difficulties. Several efforts since 1945, which identified the same problems, had failed.
During the course of the Task Force’s research, it became clear that there were three critical stakeholders who required to be brought on side with the proposals – the Society, the Royal Institution of Chartered Surveyors (“RICS”), and the Council of Mortgage Lenders (“CML”). A series of separate meetings were organised with each body to isolate their concerns and seek to overcome the obstacles they posed. It is fair to say that the most difficult body to convince was RICS, but the issues they put forward were overcome with their help to enable the market-led pilot to proceed. It has to be remembered that the market for surveyors will radically change. Their market currently emanates from buyers – lots of them – to sellers – fewer of them. Surveyors’ relationships will essentially be driven in the future by estate agents and solicitors, and perhaps financial institutions will take more of a lead in this area than we think. Remember too that each of the professional bodies – Law Society of Scotland, RICS and CML – publicly supported the principle that the single survey be tested in a pilot scheme.
The single survey proposal retains, at its heart, the central role of the solicitor in the buying and selling process. I have been challenged by some members of the profession who have raised a series of questions about the Task Force sub-group’s proposals and I thought it appropriate that I now deal with the most frequently asked questions.
The subject to survey offer system is better?
This system provides a purchaser with absolutely no information on the condition of the property he/she intends to buy. Further, he/she is gauging the price based on the knowledge of his/her adviser (who hasn’t seen the property) and thoughts of the current state, “hot” or otherwise, of the market. Evidence was given to the implementation team of the single survey that surveyors were under pressure to ensure that the valuation they provided matched, or at least came close to, the offer price which had been contained in the “subject to survey” offer of the buyer. “Subject to survey” offers meet none of the objectives of the Executive and, as I understand it, have not led to an increase in the number of the Scheme 2 surveys, following a successful conditional offer. This method exposes the weaknesses in the system and does not meet the requirements of the Executive. Further, the DTZ Pieda report made it clear that a successful purchaser was prepared to pay a meaningful sum (£300-400) for a full condition report with a valuation upon which they might rely on purchasing the property. Meaningful information enables the purchaser to make an informed decision prior to his/her offer in respect of the property. The reaction of the Edinburgh, Aberdeen and other markets, to obviate multiple surveys by introducing the “subject to survey” offer system, completely misses the point.
The single survey manipulates pricing in the housing market?
The single survey, including a valuation, will remove low upset prices. This does not mean to say that any purchaser is confined to offering around the valuation price. A purchaser may offer, as he/she currently can, what he/she wishes. The market will be moved by supply and demand conditions. The single survey does not adversely affect the balance between sellers and purchasers. Closed bids will remain a feature of the market with every purchaser having an opportunity to purchase based on genuine information. There is no question that the single survey process will lead to fixed prices. The system in that regard will be no different. It has never been suggested to me, nor indeed I am sure to any member of the HITF sub-group, that there is any prospect of seeking to manipulate house prices. Neither is it anti-competitive. The single survey system follows templates of other European jurisdictions where the system works well. I believe that in the future purchasers will look back and marvel that in the past people entered into the largest purchase of their life with no information upon value or, indeed, condition.
The single survey is too expensive?
It has been mentioned to me by some members of the profession, that there would be a charge for the single survey of approximately £1,000. I have to say I think that is rather wishful thinking on the part of those carrying out the work, as that is approximately three times the figure quoted to the HITF. It also does not take into account the market. The pilot for the single survey, although market-led, was market-unaffected. It was essentially a compromise between the parties involved in the system, and surveyors required paid at source. The market will affect the price of the single survey and the timing of its payment. It is difficult to envisage what the market will do, but it seems to be a legitimate prediction that costs will come down as competitive forces are applied.
There is an inherent conflict of interest where the seller instructs the survey but the purchaser relies on it?
A key consideration for the HITF was the independence of the survey. Clearly buyers would not use it if they thought that the seller had been able to influence the compilation of the report and, indeed, the market valuation. There are several other jurisdictions where the independence of the survey is protected. Although the survey is instructed by the seller, he/she would not be able to influence the surveyor in the commentary on the property, nor its value. Much time was spent with RICS who were to develop the appropriate code of practice and protocols relating to the survey compilation. There was also the creation of a complaints scheme. An enormous amount of time was spent by the HITF considering this particular matter and, indeed, the Executive instructed their own solicitors as did RICS with regard to this issue. The two critical matters were the legal position, and the perception issue.
The legal position
Is it legally possible to ring-fence the single survey as an independent task, have the surveyor uninfluenced by the seller, and have a report that bears that independence and may be relied on by the successful purchaser? Can the purchaser have legal rights of action against the surveyor in the event of him/her having negligently prepared the report? The answer to both these questions is “yes”. The legal issues were overcome. There was much negotiation with regard to the matter and the independence of the survey will be protected under the contractual arrangements. Eventually both sets of lawyers were able to agree the contractual position, whereby liability of the surveyor passed to the successful purchaser. The independence of the survey is enshrined in the contractual documentation entered into by the seller, surveyor and purchaser.
The perception issue
The HITF were very aware that the reality of the independence of the report and the legal protections which surrounded it would be of little value unless the reality also became the perception of the buying and selling public. The fact that so many advisers still misunderstand the position suggests that this message has either not been absorbed or not accepted. The single survey is independently prepared, and may be relied on by the purchaser with remedies for negligence on the part of the surveyor passing to that successful purchaser. The HITF report considers this fundamental issue in much detail, as did the legal advisers of RICS and Scottish Executive. Real and perceived independence of the survey will continue to be a focus of the single survey implementation group and the legislation.
Why didn’t the single survey have a latent defects guarantee?
Although there are some current difficulties regarding latent defects guarantees arising from FSA compliance, the market has had latent defects guarantees provided by some of the firms of surveyors. However, the Task Force negotiated with RICS and, despite their best efforts, they were unable to obtain a latent defects guarantee for the whole of their profession. In a market-affected single survey scheme I do not doubt that that position would change as those that are able to offer a latent defects guarantee, do so and those who cannot will not.
The surveyor is unable to give advice to the buyers?
This has been raised with me on many occasions as being a difficulty. For my part, I think this observation misunderstands the fundamentals of the single survey which is that it must be independently compiled and no purchaser should be preferred over another. It was envisaged that if there had been a material omission from the single survey, it would be rectified and all purchasers advised. If the purchaser wishes advice on the terms of the single survey, he can consult his own surveyor. It is not envisaged that that will lead to further multiple surveys. Much time was spent on the form and content of the single survey report which should contain all of the essential information in a clear, visually comfortable and understandable way. Purchasers will be much better informed than they are under the current system and the real likelihood of consulting another surveyor is low.
The poor will suffer?
This is an issue clearly described in the article “Don’t make it compulsory”, Journal, June 2005, page 54. It is an issue that also took up considerable Task Force time and is currently under discussion. However, the figure quoted of the cost of the survey being £1,000, £700, or £600 comes from imagination, not reality. As I have already mentioned the figure quoted to the HITF was between £300 and £400. I also mention that the market may move survey prices to the advantage of the consumer. However, sellers who are moving out of the private sector to, for example, RSL accommodation or supported residences, e.g. nursing home, may require financial assistance. Perhaps the market will find a solution or there will be support from the public sector. These considerations are currently being discussed.
Other key issues relating to the single survey process
There were many other factors in relation to the single survey to which much time of the sub-group was directed. Examples of such issues were shelf life of the survey; right-to-buy properties; new-build properties; professional protocols regarding production of the survey; including a valuation within the survey; low-value properties; form and context of the survey; rectifying defects; qualifications of surveyors; follow-up information and queries; capacity constraints of RICS; and comparisons with the evolving English proposals.
The views of the Task Force on these key issues and other important issues relating to the house buying and selling process are outlined in detail in the final report. Examples of these other important issues are proposals for a purchasers’ information pack; the selling process (closing dates, blind bidding, low upset prices, concluding the contract and reducing delays); standard missives; builders’ missives; clarifying the costs of the process; the role of lenders; and rights of redress (caveat emptor, and complaint issues regarding solicitors, surveyors, and estate agents): see www.scotland.gov.uk/hitf .
The Task Force had a very varied complement of interested appointees, including inter alia solicitors, surveyors, estate agents and members of the CML. Paragraph 172 of the HITF report states: “We believe that there is a very strong case, in principle, for the introduction of a single survey approach in Scotland and that our detailed examination of the practicalities has not identified any fundamental problems that cannot be resolved.”
The single survey should be supported as it best meets the primary requirement of the Executive that purchasers should have full information on the property of their choice. Further, the evidence suggests that buyers are prepared to pay a reasonable amount for a survey with a detailed condition report of the property and a valuation, coupled with a remedy against the surveyor who although commissioned by the seller, remains under contract liable to the successful purchaser for negligence. Further, only the successful purchaser would be primarily liable to make payment for the single survey, which removes multiple valuations. By disclosure of the valuation within the terms of the single survey, low upset prices may be avoided. The proposed legislation represents a considerable improvement in our current house buying and selling system and retains the solicitor at the heart of the buying and selling process. It is a proposal that should be supported by the profession.
Lorne Crerar is Managing Partner of Harper Macleod LLP
In this issue
- Moving in society
- Pots and kettles
- Unseen force
- Licence to let?
- The cost of a puff
- Select band
- Cross-border disputes: a practical way forward?
- No hiding place
- Safe as houses?
- Close connection
- Another string to the bow
- The ultimate sanction?
- A right and its exercise
- In good company
- Out of bounds
- Scottish Solicitors Discipline Tribunal
- Website reviews
- Book reviews
- The single survey: why it should be supported
- Drafting deeds of conditions - a real burden?
- SDLT online service