Forewarned is forearmed
We live in a world of raised consumer awareness, where everything is questioned and challenged.
Never have consumers had so much information at their disposal to assist them in their decision-making. One only has to look at the proliferation of price comparison websites and consumer guide reviews to see that there is hardly an aspect of life where choice cannot be based on a wide range of data, both independent and subjective.
So why is it that, when making the most important purchase of their lives – their home – the vast majority of buyers shun such advice, and go ahead armed with little more than a feeling that the property is right for them?
Research by RICS showed that, where home-buyers had failed to obtain independent advice in the form of either a HomeBuyer Report or a Building Survey, over half had incurred unexpected expenditure at an average cost of around £2,000.
These were additional costs they would not have incurred had they known about the problem and been able either to renegotiate the price or require the vendor to correct the defect prior to purchase.
Many reasons are cited for the lack of consumer demand for independent advice.
There is the belief that the lender’s mortgage valuation report tells them all they need to know (‘if the lender is happy to lend, it must be alright!’); the additional cost in what is an already expensive process (but is £300–£500 a high price to pay for peace of mind or the potential to save considerably more?); and the perceived reluctance of agents, mortgage advisers and conveyancers to recommend a private survey to their clients, for fear of something coming to light that might jeopardise the sale and thus put a commission at risk.
We all know that the mortgage valuation report is commissioned by and for the lender, to assist in the funding decision, but the majority of consumers believe it is for their benefit – after all, they have paid for it, haven’t they? They also believe it is a survey, not the valuation that it actually is.
For professional advisers, there are different dynamics at work: estate agents act for the seller not the buyer, and so have no obligation to point a purchaser in the direction of an independent survey, although good working relationships with trusted local surveyors and a potential income stream through referral fees may make good business sense.
Mortgage advisers may see commission at risk if a discovered defect thwarts a sale. But purchasers are led by the heart not the head, and will generally move heaven and earth to secure the home of their dreams, unless there is some fatal flaw.
Conveyancers have a formal obligation to advise their clients to seek independent advice.
This is enshrined within the CML/BSA Lenders Handbook, but sometimes only lip service is paid to this requirement, forming, as it does, a small part of a huge amount of information that has to be relayed to the client.
Ultimately, lenders, advisers and conveyancers are all under an obligation to treat customers fairly. It is significant that the FSA is starting to take a far more proactive stance in questioning lenders’ commitment to this requirement, and to ask specific questions around the recommendations given to consumers to seek independent advice.
Equally, neither financial advisers nor conveyancers are experts on surveys, their scope and limitations, and so are not best placed to provide objective advice on the best type of report for their client.
A number of lenders now acknowledge this and are allowing surveyors to contact their customers direct to offer survey services above the basic mortgage valuation.
One argument put forward is one of cost and the fact that the types of survey currently available, the Homebuyer Report and Building Survey, are too comprehensive for many people, who simply require a simple report that highlights any major issues that might have significant cost issues and that pose a genuine risk to them as occupiers of the property.
To address this, RICS has introduced the RICS Condition Report, part of its range of Home Surveys, designed to fill this perceived gap in the market.
It offers a concise report, allocating Condition Ratings to the elements of the property, enabling the buyer to see, at a glance, those areas where significant problems have been found, and where further investigations into repairs and potential costs are needed before committing themselves to a purchase.
It is targeted at those purchasers who currently rely only on the mortgage valuation, and is not a substitute for the more comprehensive forms of report which still have a valuable place in advising buyers not only about the condition of the property but also what steps are needed to deal with the issues raised by the report.
However, because of its independent and objective reporting style, it may reduce the fear amongst sellers, their agents and other intermediaries, that a survey is a ‘deal-breaker’ rather than a ‘deal-maker’, by allowing informed negotiations to take place and better management of the expectations of both sides of the transaction.
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