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STEWARDSHIP AND RESPONSIBILITY: A Policy Framework for Private Housing in Scotland

CHAPTER THREE: IMPROVING THE OPERATION OF THE HOUSING MARKET

INTRODUCTION

113. Our first stage report concluded that there are few market-related incentives that encourage owners to keep their houses in good condition. Depending on the local market, property values may continue to increase whether or not the property is properly maintained. Lenders are now less inclined than previously to impose retentions on mortgages until repair defects are rectified and, on average, owners stay just over six years in any one house, with the result that they may be less concerned with the repair and maintenance necessary to protect the house in the longer term.

114. Without adequate expenditure on repair, maintenance and, over time, improvement, all housing will eventually start to fail. As a matter of public policy, we think that there is a need to encourage house buyers and sellers to be more interested in house condition. Ideally, we would like the relative condition of houses to be clearly reflected in their price so that, other things being equal, there is a market premium for well-maintained houses and a market penalty for houses in poor condition. This would create a very clear incentive to sellers and persons thinking of selling in the future to keep their properties in good condition. However, a market incentive of this nature is only possible if both buyers and sellers have good information on house condition. It is quite clear from the evidence set out in the first stage report that this is often not the case at present.

115. We have accordingly sought to identify ways of improving the home buying and selling process with the aim of enhancing the information available on the condition and likely maintenance requirements of a property, whilst also considering whether there are ways to reduce delays and unnecessary costs.

116. In seeking to improve it, we have aimed to build on the strengths of the existing house buying and selling system. The first report noted a number of key advantages to the existing arrangements: clear outcomes, relative speed compared to England and Wales, and by international standards, relatively low transaction costs. Our aim has been to ensure that in tackling those problems that do exist we do not undermine these strengths.

117. We also consider in this chapter whether there are ways in which owners can be provided with increased confidence that any tradesman they employ to carry out work will do so to a good standard. Difficulty for some people in identifying reliable contractors was identified in our first report as a factor in discouraging repair and maintenance.

118. Finally, we look at whether there are options for change to reserved UK legislation that the Scottish Executive may nevertheless wish to examine further in conjunction with their Westminster colleagues. Some possible approaches are identified, although these are generally not considered crucial to achieving the results we seek.

BACKGROUND

119. The Scottish house buying and selling system is marked by a number of processes and conventions that distinguish it from, for example, the system in other parts of the UK.

120. Most houses for sale are advertised through firms of solicitors, who act as agents in this respect for the sellers, although firms of estate agents do also operate and have a sizeable share of the market in some areas. A solicitor will generally also carry out for the seller the legal work involved in selling the property, whilst another will perform an equivalent function for the buyer.

121. In most cases, once a prospective buyer has found a suitable property, a qualified surveyor will be commissioned to inspect it and produce a report for the buyer and any lender that will be offering a loan secured upon it. This inspection can take a number of forms:

• a Scheme 1 Valuation Report is a brief report that is designed to identify whether the property is structurally sound, to point out any major defects, and to help the lender decide how much it is prepared to lend the buyer. While the report is commissioned for the lender, it is generally the house buyer who pays the fee
• a Scheme 2 Homebuyers Report and Valuation is a more extensive, and accordingly more expensive, report that provides more detailed information about the condition of the property. It will report, to a standardised format, on the general condition and a range of external and internal features of the property, its services and the site, although the inspection is non-intrusive, so that the surveyor will not move furniture or fittings, lift floorboards, etc. It will identify defects and problems that the surveyor judges to be urgent or significant
• a full Building Survey is a very detailed report covering all the elements that are visible or easily accessible, examining the soundness of the structure, its general condition and aiming to identify all major or minor faults. With the consent of the seller, the survey can also involve examination of concealed elements, and may involve some disruption to the property.

122. If the prospective buyer, and any lender, is satisfied with the valuation or survey, a verbal "note of interest" can be made, which prevents sale to another person at least until an offer can be made by means of a letter from the prospective buyer's solicitor. On a "fixed price" property, the seller will take the first offer received for the fixed amount. Where the property has been held out for sale as "offers over" a certain amount, it is usual for the seller to set a "closing date" by which offers have to be made, particularly where there is significant interest in the property and a number of offers are expected. In these circumstances, the sealed offers are opened on the closing date by the seller's solicitor, and the seller will choose which to accept, if any. (This process is known as "blind bidding".)

123. If an offer is accepted, the seller's solicitor will send the buyer's solicitor a written acceptance letter, at which point both parties are bound to go ahead with the sale and no withdrawal can be made without incurring a penalty. In practice, it is common for a number of letters, setting out and revising various conditions to the contract, to pass between the solicitors (this process is called "missives") before a final offer and acceptance are agreed ("the missives are concluded").

124. After missives have been concluded, the buyer's solicitor will examine the title deeds of the property, its ownership history and various other certificates and warranties. This is done to ensure that, e.g. title to the property can legally be transferred, that there are no outstanding loans secured against it, that there are no local authority repairs notices which affect it and that any alterations to the property have complied with building regulations.

125. Once this is done, the "Disposition" transferring title from seller to buyer is prepared for signature by the seller before the date of entry, at which latter point, the payment for the house is made and the buyer receives in return the keys, the title deeds and the signed Disposition.

126. Finally, the buyer's solicitor will then send off the Disposition (and the Standard Security for any loan) to be recorded in the public Register of Sasines.

127. Our first stage report detailed a range of conclusions concerning this process, informed by a major piece of research undertaken on our behalf (DTZ Pieda Consulting, 2002). That research report is available in full on the Task Force website ( www.scotland.gov.uk/hitf) and its findings have continued to impact on our examination of the issues surrounding the house buying and selling market.

IMPROVING THE INFORMATION AVAILABLE TO HOUSE PURCHASERS

Proposals for a single survey

Introduction

128. For a number of years, there have been periodic debates about the merits of moving from a system whereby individual house buyers commission surveys or, more usually, valuations for houses which they are thinking of buying to an alternative arrangement whereby a single survey is shared amongst all prospective purchasers. In 1982 the Secretary of State for Scotland invited The Law Society of Scotland to chair an Expert Committee to examine this proposition and although that Committee rejected the option of a 'standard requirement for a seller's survey', calls for such an approach have been repeated at intervals since then and we have looked at this issue again. However, we prefer the term "single survey" and we have looked at both the general merits of this approach and the detail of how this might work in practice.

129. Proposals for a "single survey" linked to any particular house sale and purchase in Scotland are designed to tackle three important weaknesses in the house buying and selling system which were noted in the Task Force's first report:

• the current reliance of most house purchasers on Scheme 1 valuations which provide only limited information on the condition of a property. We consider that Scheme 1 valuations are inadequate to meet the necessary level of information that should be made available to the purchaser and note that many solicitors do try to suggest to their clients that they commission a Homebuyer's Survey
• the encouragement which the existing system gives to multiple surveys and valuations, particularly in buoyant housing markets such as Edinburgh and the West End of Glasgow, which can result in abortive costs for house buyers and a disinclination to commission the more detailed, but more costly, surveys in advance of a purchase
• the setting of upset prices at an artificially low level by sellers in order to stimulate interest in the property, which can result in prospective buyers spending money on an unnecessary survey or valuation report for a property outside of their price range.

The single survey concept

130. The "single survey" solution seeks to resolve these problems by providing a single house condition report which is potentially available to all those involved in the house buying and selling process. This survey report would provide a comprehensive guide to the condition of the property, together with a valuation. In principle, therefore, it would provide much more detailed information to both house buyers and sellers than is usually the case at present and avoid the need for competing house purchasers to commission separate surveys and valuations. It also ensures that there is an independent valuation of the property available so that potential buyers do not have to rely on the upset price to decide if it is likely to be affordable.

131. This would represent a considerable departure from the arrangements that have been in existence for some time. For it to work successfully, it would need to be integrated into the house buying and selling system in a way that is both practical and reasonably straightforward and commands the support and confidence of house buyers and sellers.

132. There are a number of possible variants to the detailed design of any single survey. We have taken account of a particular approach which has been developed and tested to a limited degree in the West of Scotland, but we believe that most of the conclusions set out below would apply to other possible approaches.

Commissioning single surveys

133. Under the current arrangements, any surveys or valuations are usually commissioned by the buyer or buyer's agent. The single survey approach that we considered would require that the survey should be commissioned by the seller or seller's agent and then made available to prospective purchasers. This fundamental change raises a whole raft of issues that need to be addressed. These include:

• Is it possible for prospective buyers and lending institutions to have confidence in a survey which is commissioned by a seller or seller's agent and undertaken by a surveyor who might be thought to have a conflict of interest?
• Will there be implications for the surveyors' duty of care and, if so, will this have knock on implications for their professional indemnity insurance?
• Will the seller have to meet the cost of a survey and, if so, can some or all of this cost be recouped from the purchaser?
• Will the single survey include a valuation and, if not, how will valuations be obtained?
• Are there sufficient surveyors in Scotland to make the "single survey" concept work?

Ensuring confidence in the single survey

134. To be accepted by all parties, the single survey must meet the needs of both sellers and prospective buyers by providing objective, reliable and reasonably comprehensive information on the condition of the house. Sellers may wish to use the survey to identify defects which need to be rectified before the house is put on the market; prospective buyers will want to use the information in the survey to decide whether to offer for the property and at what price; and the eventual buyer will want to be able to use the survey to decide priorities for improvement and repair work.

The form and context of the single survey report

135. We considered whether any single survey should be based on the existing RICS Scottish Homebuyer's Survey or on the House Condition Report being developed by the Office of the Deputy Prime Minister as part of the proposed seller's pack for England and Wales. On balance, we believe that the starting point should be the current version of the Scottish Homebuyer's Survey because:

• it includes information that would allow for a valuation to be made
• it provides for the interpretation of defects, not just a list of defects
• it is flexible, well known in the market and familiar to surveyors, the courts and some house buyers, as well as the lenders.

136. However, we consider that some amendments are desirable to make it more suitable for use as a single survey. Our suggested changes are:

• the inclusion of some standard information/guidance on likely future maintenance requirements tailored not to the individual property but to the type of house
• some improvements in the formatting of the information to make it more accessible to the non-specialist reader
• some additional information on the form of an energy efficiency report (which is likely to be required to meet the terms of the European Union Directive on 'The energy performance of buildings'), a summary disability access report (to help buyers with disabilities who wish to identify a suitable house) and, as a possible optional extra, a security report.

137. The cost of the Homebuyer's Survey currently varies according to the price of the house sold and information supplied by RICS suggests that a survey and valuation for a house selling at the 2002 Scottish average price of approximately 80,000 might be in the range of 320 to 350 (excluding the cost of an optional hidden defects guarantee estimated at around 100 as per paragraph 141 below), although the actual price would be dependent on the market. The RICS figures are indicative only, and variations currently exist depending on factors such as the local market or the particular circumstances or strategy of the surveying firm. We are aware, for example, that a surveying firm that is a part of a national lending, estate agency and surveying business is able to offer an equivalent survey for 280 (based on an 80,000 value), including a defects guarantee.

138. RICS have advised that each of the further energy efficiency, access and security reports mentioned above might cost a further 45 (plus VAT), i.e. around an additional 160 for all three.

139. Annex B sets out the views of RICS on the scope and format of a Homebuyer's Survey that might be used for a single survey including details of the additional items. It also gives details of the exclusions that currently apply to the Homebuyer's Survey and possible ways that these might be modified for the single survey. We believe that these need to be reviewed carefully, since frequent reference to exclusions in survey reports can undermine their credibility with house buyers and sellers. Annex B also gives more detail, as provided by RICS, on estimated approximate costs.

140. In principle, we think that the approach of building on the existing Homebuyer's Survey is the right one but there are concerns about cost, particularly in relation to the lower end of the market where the expense of the survey might be seen as disproportionate to the price of the property. We therefore recommend that prior to the proposed pilot, further consideration should be given to the detailed content of the survey, and possible alternatives, with the aim of achieving the best balance of content and cost that will nevertheless achieve the primary aim of significantly improving the level of information supplied to the great majority of house buyers.

Hidden/latent defects guarantees

141. We consider that it would be highly desirable for the single survey to include a hidden/latent defects guarantee. Where these have been offered in the past, for example by Allied Surveyors in their sellers' survey scheme that has been used in Glasgow and Hamilton, the evidence suggests they have been very popular with homebuyers. Although the level of claims on these policies has been low, the existence of such a guarantee would help to increase the confidence of buyers in the survey. However, the necessary insurance which would underpin such guarantees could add considerably to the overall cost. One insurance broker's estimate was that this might currently increase the average price by 100 per survey although the cost itself is likely to vary according to the uptake of the insurance and the extent to which it is a standard feature of the scheme. We are aware, as noted at paragraph 137, that at least one firm is currently offering a defects guarantee at what appears to be no extra cost to the consumer. Although we recognise that there are particular promotional benefits in providing something that consumers recognise as a "guarantee", because we have concerns that its inclusion might make the overall cost so high as to render the survey unattractive to many of them, we have concluded that this should ideally be available as an option or addition to the ultimate purchaser.

The shelf life of the single survey

142. We have also given consideration to how long the report, once it had been prepared, might continue to provide a reliable guide to the condition of the property - sometimes known as the "shelf life" of the report. It is unusual for the condition of individual houses to change quickly and, in most circumstances, the survey should remain valid for at least three months. Nevertheless, as in the case for any survey, the surveyor can only be expected to assess the condition at the date at which the survey is carried out and that, therefore, there can be no question of an undertaking that the condition of the house had not changed over a specified period. It follows from this that buyers would not have the right to claim against a survey for not identifying defects that had arisen after the survey was carried out. This is no different from the current position when surveys are commissioned by buyers. We concluded, therefore, that there should be no prescribed shelf life for the survey.

Rectifying defects

143. Some sellers may wish to use the survey report to rectify defects before the house is put on the market, so there will need to be arrangements to allow for the report to be modified after work of this nature has been carried out. Sellers could expect to be charged a modest re-inspection fee for this. We are aware of a concern that in these circumstances surveyors could be mistakenly seen to be "warranting" any work that had been carried out, so that it will be necessary for the re-inspection report to clearly indicate that this is not in fact the case. Similarly, if a significant retention of part of the loan was required by the lender because of the need to rectify defects brought out in the single survey, then the purchaser might also be required to commission and pay for a re-inspection fee once the work had been completed.

Qualifications for surveyors

144. The existence of a survey along these lines should go a long way to reassure buyers and sellers that the single survey can be used by all parties. There may still, however, be a fear that some surveyors could produce a report, at the behest of the seller, which overlooked or under-stated particular condition problems. To provide further reassurance, particularly to prospective buyers, that the results of the survey had not been influenced by the seller, only suitably qualified surveyors should be used to produce single surveys. Our view is that surveyors/valuers should be appropriately qualified valuation surveyors experienced in residential property work in a particular locality; whilst currently these will almost always be RICS members, we would want to leave open the possibility that others with appropriate qualifications should also be able to carry out surveys in the future.

145. We also considered whether there should be arrangements for on-going monitoring of single surveys. It was noted that in England, the Office of the Deputy Prime Minister proposal for a statutory seller's pack was linked to an industry-run certification board which would be recognised by the Secretary of State and which would have fairly comprehensive responsibilities for accrediting surveyors and monitoring their work as well as other duties such as approving the form and content of the House Condition report itself. The work of the certification board would be funded by charges paid by accredited inspectors.

146. It has been suggested to us that the cost and bureaucracy of a comparable quality control monitoring system for any single survey in Scotland could be prohibitive and unnecessary, bearing in mind that RICS has a compulsory arbitration scheme and that their proposals to appoint an ombudsman for Scotland should substantially improve the means of redress for dissatisfied consumers. RICS has, however, proposed that a "light touch" system of monitoring should be included in any pilot of the single survey. This would be based on the establishment of a review panel which would undertake quality control checks on a percentage of surveys with all surveys being registered with the panel. The panel would operate according to an agreed set of guidelines to be approved by the Scottish Executive and an industry wide Steering Group. The quality control checks would cover:

• checks on terms of engagements (for example, to ensure that they have been signed, were understandable and refer to complaints procedures)
• completeness and legibility of reports
• delivery times
• communication with prospective purchasers (for example, to ensure that surveyors were not selectively providing information to certain prospective purchasers).

147. We also accept that, as a means of reassuring buyers and sellers, there could be advantage in continuing quality control checks on a permanent basis for all single surveys. However, we believe that any decisions on arrangements for continuous monitoring beyond the pilot phase should be taken in light of the experience of the pilot itself.

The surveyor's duty of care

148. Surveyors have a duty of care to the buyer and the lender (if the survey is used to support a valuation for mortgage purposes) and they are required by RICS to carry professional indemnity insurance in case of successful action on the grounds of professional negligence arising from breaches of this duty of care. There is a concern in the surveying profession that single surveys would extend their duty of care further, i.e. to the seller who instructs the survey, as well as to the purchaser and any lender, and that this would require additional professional indemnity insurance at a cost that would have to be passed on to the consumer. There is a fear, given the current difficulties with professional indemnity insurance generally, that adequate cover might be unobtainable or prohibitively expensive.

149. To avoid this difficulty, we consider that a style of contract should be prepared which would effectively limit the contractual liability of the surveyor to the eventual purchaser and any lender. The Law Society of Scotland's Conveyancing Committee has expressed a view on the validity of such a contract and has suggested that certain key principles should be included. The key points they make are that:

• providing the contract for the commission of the survey between the seller and surveyor contains an explicit provision to that effect, the surveyor would have a duty of care to the purchaser and any lender notwithstanding that the seller instructed and paid for the survey
• there is an overriding liability in delict to the seller for any manifestly negligent act or omission on the part of the surveyor irrespective of the terms of any contract
• detailed legal drafting of the terms of the contract would be required prior to the introduction of the proposed single survey.

150. We have, however, noted the RICS concerns that the continuing delictual liability to the seller, although remote, might nevertheless have an impact on professional indemnity insurance and we have sought advice from insurance underwriters in Scotland. One firm advised specifically that professional indemnity insurance should not create any particular obstacle to the introduction of a single survey and this is consistent with the experience of those surveyors who have already provided surveys along these lines. However, the position on indemnity insurance would need to be kept under review if and when single surveys were promoted.

Meeting the costs of the survey

151. At present the costs of commissioning surveys and valuations fall to prospective buyers. Since single surveys will be commissioned by sellers or their agents, the initial liability for meeting this cost must inevitably fall on the seller. Sellers may well, however, think that this is unreasonable since the main likely beneficiaries will be prospective buyers, particularly the successful buyer. We believe, therefore, that sellers or their agents should only release the survey to prospective buyers if they agree, in the event of successfully purchasing the property, to meet the cost of the survey. Recovery of that cost would be dealt with in the contract between the seller and purchaser and this would be consistent with the proposal for a model contract which would transfer the contractual duty of care to the eventual purchaser. If the seller or seller's agent were to be given a statutory duty to provide prospective buyers with a copy of the survey then it would be more difficult to ensure that the cost is eventually transferred to the successful purchaser.

152. One possibility is that surveyors might agree to postpone submitting their bills until the house has been sold so that the bill could be sent directly to the successful purchaser. However, we agree that it would be unreasonable to create an expectation that this should be the normal arrangement, since it could lead to long delays for surveyors in getting paid for their work.

153. It is also possible that the single survey could lead to changes in the way in which surveys are provided. For example, the single survey (and any associated Purchaser's Information Pack) might become part of a package of services that lenders, solicitors and estate agents could offer to clients. It is difficult, at this stage, to predict with any certainty what changes might take place in the provision of surveys and, in particular, how extensive such changes might be. At present the precise basis on which a surveyor is selected may not always be apparent to the client, e.g. the surveyor might be appointed by their agent and an "arrangement fee" added to the cost. Because there is a concern that further packaging of services could make the position less clear for the consumer we would emphasise that it is important that the commissioning process for single surveys is transparent to clients. By this we mean that the basis on which any surveyor is appointed to undertake the single survey is understood by the client and that any commissioning fees charged are clearly disclosed (including any indirect charges).

Valuations

154. In the Scottish house buying and selling process, valuations provided by a professional valuer are used for two main purposes:

• to help prospective buyers in consultation with his or her agent to decide how much to offer for the property
• to meet the requirements of lenders providing mortgage finance who may want to be reassured that the value of the property exceeds the amount of the loan.

155. In some cases, sellers may also commission a valuation from a professional valuer to help decide the upset price but it is more common for them to base this on advice from their selling agent. Similarly, prospective buyers are likely to take advice from their agent in deciding how much to offer having seen the value determined by the professional valuer. Formal valuations provided by professional valuers are particularly important for first time buyers and others wishing to obtain a loan to cover a high percentage of the costs, since lenders depend on this valuation to determine the maximum loan available.

156. Unless the single survey can be used as a basis for a valuation, then prospective buyers are likely to be faced with having to commission a separate valuation and the current problem of multiple valuations would be perpetuated. It is conceivable that many prospective buyers could rely on advice from their agents (who are normally very knowledgeable about house prices in their areas) to determine their bids. It is also possible that, increasingly, lenders will be happy to accept "desk based" or "drive by" valuations in certain cases where the loan to price ratio is low. Nevertheless, valuations provided by professional valuers will be a continuing necessity for many buyers for the foreseeable future and it is understood that building societies may be legally required to obtain a valuation before lending on a dwelling house for mortgage.

157. We have examined two possible ways of avoiding the need for buyers to commission a separate valuation whilst recognising that they should always be free to opt for this if they so wish. The two alternatives are:

• for the single survey to come with a valuation (as is the case, at present, for Homebuyers' Surveys commissioned by purchasers). There are a number of potential difficulties with this. Valuations are inherently more subjective than condition assessments and must take account of market evidence as well as the characteristics and condition of the property. There is a possible danger that a valuation issued directly to the seller's agent would be perceived by others as seeking to support the price the seller wishes to achieve, i.e. to lead and influence the market. In buoyant markets, it is also possible that market circumstances may change between the survey being carried out and the sale taking place. The valuation may subsequently become "out of date" and although for most buyers this should not be a problem, it could create difficulties for those wishing to borrow a large percentage of the cost as is the case for many first time buyers
• for prospective buyers to be able to require a valuation from the surveyor who carried out the house condition report. It is envisaged that the cost of providing valuations on this basis would be included in the initial cost of the house condition survey. All potential purchasers would receive the same valuation. The surveyor undertaking the survey would determine a valuation the first time this was requested by a prospective purchaser and the same valuation would be handed over, on request, to other prospective purchasers either in hard copy or by way of e-mail.

158. In our view, the first option is to be preferred. It is more simple and straightforward and although a valuation might become dated quickly in a buoyant market, it is in markets of this sort that, in practice, houses sell relatively quickly. The extra time available to the surveyor undertaking a single survey (as opposed to simply a valuation) would also allow him/her to obtain more extensive evidence on comparable sales and therefore assess the likely level of interest. This should help to avoid any suggestion that the valuation might lead rather than reflect the value.

159. For either of these options to work, the valuation has to be acceptable to the lender providing mortgage finance to the buyer. The CML representatives we consulted with explained that, in their view, a valuation provided by a professional valuer and based on a single survey of the type described above would be acceptable in all but a limited number of cases. They would, however, want to reserve the right to require a separate valuation if, for any reason, the surveyor/valuer in question was not acceptable to them.

Follow-up information and queries

160. When a survey is commissioned by an individual purchaser or seller, then the surveyor would normally be available to answer any points of clarification arising out of his survey report. Where, as in the case of a single survey, the intention is that a number of parties could have access to the survey report, then RICS rules would require responses to any points of clarification to be circulated equally to all those who have an interest. In practice, this might be rather difficult to arrange since the surveyor might not be aware of all the prospective purchasers who have access to the report. At best it would require additional trouble and effort if and when follow-up queries were raised. To avoid this problem there should be a clear understanding that follow-up queries would not be possible in connection with the single survey, except where there are glaring issues of clarity that require to be addressed for all interested parties.

161. Rather different considerations apply where one of the parties wishes to commission a further separate report on a specific topic either from the surveyor or from some other specialist, for example, a report from a structural engineer or wood rot specialist firm. Any specialist or follow-up reports of this nature would simply be available to the person that commissioned them.

Capacity constraints

162. It is estimated that there are currently approximately 135,000 house sales per annum and, in most cases, some form of valuation or survey will be instructed. However, since at present, most houses are bought on the basis of valuations only, a general shift to a single survey based on the Homebuyer's Survey could lead to a substantial extra demand on the surveying profession in Scotland. This would be offset, in part, by a reduction in the need for separate valuations and, in particular, by cutting down in the duplication of effort which currently arises as a result of multiple valuations and surveys.

163. RICS advise that there are approximately 8600 members in Scotland, of whom 6500 are corporate members. Of these, there are around 1200 members of the residential property faculty but after subtracting trainee and technician members and those surveyors who are mainly interested in housing management, construction or maintenance the number of residential valuers is relatively small. They have also advised that a surveyor could reasonably be expected to complete two Homebuyer's Surveys per day. In practice, there are probably many surveyors with relevant qualifications who, in practice, do little or no survey or valuation work. However, assuming that there are 600 surveyors actively involved in residential work each would have to complete around 225 surveys a year or five a week (assuming a 45 week working year). These very broad-brush figures suggest that there are unlikely to be serious capacity constraints, but the proposed pilot or pilots would be helpful in checking this conclusion.

Single surveys - statutory requirement or market-led?

164. If single surveys are to be introduced and taken up then this could either be on a voluntary basis in response to market pressures or as a result of a statutory requirement. For England and Wales, the Government introduced a Homes Bill into the UK Parliament that included a statutory obligation on sellers' agents to provide a seller's pack to potential purchasers which included a house condition survey report. Although this Bill fell when the General Election was called in 2001, the expectation is that similar provisions will form part of the Housing Bill that is currently being prepared following the Queen's Speech last autumn.

165. We take the view that it would be advantageous for single surveys to be developed as a market-led, voluntary initiative if at all possible. This would probably be more flexible and less bureaucratic. In particular, it would avoid the need to impose the single survey approach in situations where there might be relatively few benefits, for example, for purchases within the family, for purchases from a landlord by a resident tenant or in other cases where for some reason the seller did not wish to use it. It would also avoid the need for civil or criminal sanctions for non-compliance. However, it is unlikely that a market-led approach will take off in Scotland unless there is very positive support and endorsement from the key players, i.e. the professional or other bodies representing surveyors, lenders, solicitors, estate agents and auctioneers, together with a willingness of some of the key firms in the market to actively promote the concept to house buyers and sellers. Even with a market-led approach, the Scottish Executive would need to play a key role in facilitating its development.

166. Representatives of the Scottish Executive advised that if legislation was required to establish a mandatory system, then this might need to include the following broad provisions:

• a duty on sellers, or more likely sellers' agents, to commission a specified house condition survey before a house is placed on the market
• powers for the Scottish Executive to specify the format of the house condition survey
• powers for the Scottish Executive to specify any exceptions from the duty to provide a house condition survey
• powers for the Scottish Executive to establish arrangements for accrediting surveyors and ensuring quality control
• sanctions for non-compliance.

167. There is also the question as to whether any legislation should include a duty on lenders to accept valuations based on house condition surveys produced according to the specified format and provided by accredited surveyors. In our view, the feasibility and desirability of any such duty would require very careful consideration and discussion. This would include consideration of whether this duty could be in conflict with prudential lending policies as required by the lenders' regulator, the Financial Services Authority, and whether legislation of this nature would be within the competence of the Scottish Parliament.

168. We noted this advice and consider that, ideally, the scheme should be market-led. However, we believe that the single survey concept has considerable advantages and it is always possible that the market-led approach may, despite the considerable support offered so far by the professional bodies involved, be hindered for reasons that are unconnected with its intrinsic merits. It follows that there may ultimately be reasons why a legislative approach is considered desirable to provide consistency across the market, and we believe that this option should be held in reserve, for example, by including reserve powers in any appropriate primary legislation. We suggest that the position should be reviewed after the proposed pilot has been carried out and evaluated.

Piloting the Single Survey

169. It was agreed that, irrespective of whether the single survey was to be introduced on a voluntary "market-led" basis or made a statutory requirement through legislation, then it would be important to pilot the single survey in the first instance. We propose that such a pilot should:

• robustly test the single survey in a range of market conditions (high and low demand areas; areas where both solicitors and estate agents were active as agents) and locations, preferably both urban and rural
• last for at least 6 months between spring and autumn or, better, a year
• focus primarily on testing the technical adequacy of the single survey approach (the content and format of the revised survey, the quality control checks, the time and resources required to prepare surveys), the acceptability to clients of single surveys, and, for those that did use them, the extent to which they are satisfied
• in order to properly test the market for the single survey, subsidise its cost to the consumer only to the extent of underwriting the potential loss to the seller of being unable to recoup the survey fee either because the property was not sold or because the purchaser had declined to use it
• be developed and managed in co-operation with the relevant professional and consumer interests and be independently monitored and evaluated.

170. It is essential for there to be a high level of interest and support for the aims and objectives of the pilot amongst the relevant professionals advising buyers and sellers in the proposed pilot area or areas. We have been advised by the Law Society, RICS and CML that the pilot will receive the highest level of co-operation from all the professional bodies involved.

Proposals for a Purchaser's Information Pack

Introduction

171. We have also given consideration to whether it would be desirable for other types of information, i.e. apart from any physical survey or valuation, to be available to prospective purchasers when the house is put on the market by the seller's agent. We concluded that there would be considerable advantages in the context of the Scottish house buying and selling process, in agents for sellers of residential properties, including Right To Buy and new build properties, putting together a standard "Purchaser's Information Pack" that would include specified documents and information for prospective buyers. This would be done before the property is put on the market, although in order to avoid unnecessary production costs the complete pack might only be offered to prospective buyers who express a serious interest.

172. Under the present home buying process, the buyer obtains certain information about the property only after an offer has been accepted. This in itself can lead to delay while the information is being assembled but it can also mean that problems with transactions may come to light only after several weeks, by which time the buyer and seller may have incurred significant costs in legal fees, surveys, etc. This can delay the conclusion of missives and, in the most extreme cases, result in sales falling through altogether.

173. By providing certain information at the outset, we believe that the process can be made faster, more transparent and consumer friendly. This means less risk of transactions being held up, less wasted expenditure and earlier certainty for everyone. It should also help highlight common and shared obligations, including liability for property management and repair costs. It will, however, require a considerable change in approach since sellers' agents will need to undertake the necessary work before a house is put on the market and sellers will need to recognise that this will inevitably take a certain amount of time.

The content of the proposed Purchaser's Information Pack

174. We have given careful consideration to the desirable, minimum contents of any such pack in the Scottish context. Our view is that it should contain:

• copies of any planning, listed building consent and building warrants relevant to work carried out on the property. Where building warrants may have to be required and are not available, it has been the common practice in the past to ask for a "letter of comfort" from the local authority. We understand that these may not be available in future as a result of the provisions of the Building (Scotland) Bill recently passed by the Parliament and that a building standards inspection report (which will assess the building against the current building standards) will be offered as an alternative
• any guarantees for work carried out on the property (e.g. damp proofing or rot eradication) as appropriate and, for new properties, copies of relevant warranties and guarantees, for example, any NHBC guarantee
• a copy of the land certificate or, where a certificate is not available, at least a summary of common repair and maintenance burdens attached to flatted properties
• a summary note of any relevant property management arrangements which would include details of any property manager (name, contact address, fees) and if applicable, any owners' association (role and contribution)
• a Coal Authority Report if applicable.

175. One possible additional item that we considered in the context of the Pack was a "log book" recording work carried out on the property. This approach is quite commonly suggested and the analogy is often drawn with a log book for a car, which is accepted as the norm and which car buyers are generally advised to examine carefully before buying a second-hand vehicle. However, this analogy is not entirely apposite, because whereas most vehicles currently on the road will have had a manufacturer's log book and maintenance schedule provided when new, no such documentation will be available for the great majority of second-hand homes.

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