September 22, 2006 § 1 Comment
Up until a couple of months ago I was working for Rightmove helping to build a system that would deliver the Home Information Packs (HIPs), which would be a mandatory part of the home selling process in the UK come June 2007. Included in the pack would be things that buyers usually needs, such as a survey, drainage search, local authority search etc. Unfortunately the government tweaked a law, which directly impacted Rightmove’s business model so much so that the company felt they could no longer continue with their HIPs business. Alongside many others I was made redundant. Since then I’ve had chance to reflect on my thoughts about HIPs.
Honestly, I never ossified my own opinion on whether the packs would work out or not. I do believe that the UK home buyer/selling process needs modification – right now it simply wastes around a million pounds per day on aborted sales and incurs more stress on those involved than is duly needed. The packs were designed as a ‘redistribution of costs’; where the seller pays for the necessary documentation surrounding a property the buyer would need, before the property is marketed, as would be a legal requirement. Upon initial inspection it sounds a great idea. I just recently sold a house and one sale fell through. We had a buyer whose own buyer proved to be less than trustworthy. I felt desperately sorry for the person we had to decline the sale of our house to. In this case she lost a fair amount of money on searches and surveys she had commissioned – which would not be the case had HIPs been in place. Also, having these essential documents available up front would have reduced the complexity of the overall process, and maybe we’d have spotted problems a lot earlier on and had more time to react.
What was the problem then? Well, a couple of things hung in the air. First was that the mortgage lenders said they would not accept the survey included in the HIP in order to issue funds to the buyer. The survey, actually named the ‘Home Condition Report’ (HCR), did not include a valuation of the property. Therefore, in the world of HIPs the seller would need to have the home-inspector round to produce the HCR, and then quite possibly somebody else to come round and produce a valuation. Had HIPs gone live, I do believe this situation may have changed. The government may have leant on the mortgage providers to accept the HCR as is, the legislation may have been altered so that the HIP includes a valuation, or maybe a workaround such as the HCR plus an automated valuation (of which companies like Rightmove provide to the industry) may have sufficed. In any case the status quo of the legislation was somewhat of an iceberg.
Another potential problem still related to the HCR is that buyers may not simply accept it. You can imagine that not all buyers will trust a survey the seller has produced. Who knows, maybe the vendor slipped the home-inspector a few quid if he ignores the dodgy roof. Perhaps, and I heard this concern from an estate agent, the home-inspector is closely tied to a particular agent, and there are incentives for the inspector to turn a blind eye to problems with a property. I’m not entirely convinced by these particular fears laid against the HCR. This system works in Norway whereupon the buyer uses the seller’s survey. It may not be ideal in all circumstances but it serves as a compromise in order to deliver a much quicker sales turnaround time. Also, corruption can easily occur in todays system. For instance I could have easily suggested a bribe to the surveyor when he came round to my house at the buyer’s request. Fortunately there was nothing wrong enough with our property that would have persuaded me to do so… but I coulda!
Contrary to the headlines, HIPs are still planned for introduction in 2007. What the government has done is made the HCR optional instead of mandatory as was proposed. It may sound like a small change, but it’s wasted UK companies millions of pounds of whom had began preparation to produce the packs biggest and most expensive document. It gets worse: many individuals had paid up to 7000 pounds to train to be a ‘home inspector’. I cannot see a great demand for these optional HCRs – how many sellers would really pay for the survey of their own accord?
Conspiracy theorists lurking claim that sabataging the business models of the major HIP providers would work in the government’s favour. The industry would now not be ready for HIPs introduction in 2007, and thus instead of suffering the embarrasment of ditching an unpopular manifesto pledge, the government could blame the industry for it’s lack of readiness, and with a scapegoat onboard, quietly drop the law. I’m not saying this is my personally held conviction; it’s just a point of view I’ve heard. For me, I’m indignant enough about the Labour party.
Presently, with the HCR effectively gone, there are still major issues with the ‘lightweight’ pack due out next year. A mandatory document of the pack is an ‘Energy Performance Report’ which needs a qualified inspector to visit the property and conduct an energy review. This document will be required by EU law. So currently there’s every chance the seller will still need two visits to their property, and the HIP even without the HCR will remain expensive.
I still believe the HIPs had the makings of a great idea. Had it been implemented well, it would have helped people with one of the most stressful activities us UK residents undertake. It could have also saved a lot of money. It was difficult to see though exactly what form it would have taken in order to get it pushed through with the HCR intact.