Research to Inform the Five Year Review of the Home Report

Executive Summary

Introduction

The Home Report was introduced on 1 December 2008, with Scottish Ministers committed to a review after five years of operation. The review commenced on 5 December 2013 and comprised a public consultation and a research study. The findings from the public consultation were published on 7 May 2014.

This report presents the findings from the research study, commissioned by the Scottish Government.

Methodology

This research comprised four main strands::

• analysis of market performance data
• a postal, self-completion survey among property buyers and sellers
• a face-to-face survey of prospective buyers and sellers, and
• qualitative research comprising in-depth interviews and focus groups among housing industry professionals, stakeholders and buyers and sellers.

All fieldwork was conducted between 9th July and 9th November 2014.

All research materials were designed by the research team at Ipsos MORI and Rettie & Co., and agreed with the Research Advisory Group (RAG).

Awareness and understanding of the Home Report

As would be expected there were high levels of awareness of the Home Report among industry professionals and national stakeholders. Buyers and sellers were also familiar with the document - over 90% of both buyers and sellers said that they had been aware of the Home Report before beginning their property transaction. However, their level of knowledge of the Home Report's content was more limited - only around half of prospective buyers and sellers knew what the Home Report covered in detail.

There were a number of misperceptions among buyers and sellers about what the Home Report is. For example, industry professionals believed that some buyers and sellers assumed that the Home Report was much more comprehensive than it actually was and/or provided some form of guarantee of the condition of the property.

Buyers were typically using higher numbers of Home Reports than they were in 2009. In this research, over 40% of buyers accessed 4 or more Home Reports, compared with just 8% in the Interim Review (carried out after the first year of operation of the Home Report).

Operation of the Home Report

Overall, buyers and sellers were positive about the content of the Home Report. Younger and less experienced buyers tended to find the Home Report more useful than those with more experience.

Buyers and sellers most commonly found the single survey and the valuation to be the most helpful elements of the Home Report, supporting the professionals' viewpoint that these were the sections which buyers were most likely to use when making decisions about a property.

The majority of buyers found each of the component parts of the Home Report to be reliable, although these percentages had reduced since the Interim Review. The main problems that buyers highlighted were repairs that had not been identified in the Home Report prior to purchase. However, only 5% of buyers or sellers had made a complaint about the Home Report.

The buyers who used the accessibility information in the Home Report mostly saw it as accurate and sufficient.

The majority of buyers said that the Home Report had increased their confidence in the buying process, due to the upfront information it provided. However, only 29% of sellers said that it had made them more confident about the selling process. That said, a number of sellers in the qualitative research said that the Home Report helped them to identify improvements and gave them a 'reality check' on the condition of their property.

Industry professionals tended to be more critical of the Home Report.

Industry professionals and national stakeholders said that the Home Report was too long, particularly the property questionnaire, and that buyers only use small parts of it. Furthermore, these two audiences also mentioned that, in order to limit surveyor liability, the writing in the Home Report was often 'neutral' or 'bland' and contained too much caveating.

Many industry professionals were concerned by what they saw as a conflict of interest between the buyer, the seller and the surveyor. The surveyor must produce a report that will be used by both the seller and buyer, two parties that have opposing interests in the property transaction - particularly in regards to the valuation and the repair categories. Some front-line professionals reported that this led to pressure being placed on surveyors to produce more favourable condition reports or reach a certain valuation. However, they did not think that this was widespread and was mainly restricted to the Central Belt.

Buyers and sellers seemed to find the process for obtaining a Home Report fairly straightforward. However, some industry professionals felt that the Home Report had increased the time it takes to market a property from a few days to two weeks and had increased transaction costs.

The Home Report has largely operated in a depressed market post-2008, but one that has revived in the last 18 months. These market changes have largely been driven by economic conditions rather than legislative changes such as the Home Report.

Performance of the Home Report against objectives

The Home Report had three core objectives when introduced:

• to address the problem of multiple valuations and surveys, particularly in market 'hotspots', either where multiple surveys were done on a single property or where buyers arranged surveys on multiple properties
• to improve information about property conditions, therefore providing an incentive for repair or maintenance works to be carried out in advance of sale, or identifying areas where improvements could be made after purchase
• to address the problems created by the practice of setting artificially low asking prices, potentially distorting the market in some locations.

It is clear that addressing the problem of multiple surveys has been achieved, although some professionals would argue that this had already been achieved through the use of 'subject to survey' offers prior to the introduction of the Home Report. However, there is now believed to be an issue with additional surveys. This is most likely to be a Home Report refresh or further mortgage valuation, driven by lenders' requirements at the point an offer is made. Lenders most often demand an additional survey when the Home Report is more than 12 weeks old or when the surveyor is not on their approved panel.

Not all additional surveys were commissioned due to lender requirements. In some instances, a surveyor may recommend an additional survey in order to look at a particular aspect of a property, e.g. the roof, in more detail.

There were mixed views on the extent to which the Home Report has led to improved property conditions. Some stakeholders and, to a lesser extent housing industry professionals, felt that gradual progress was being made. However, other industry professionals felt that the Home Report had made no difference to property conditions as they thought that sellers only made small, inexpensive improvements, if they made them at all. The survey showed that half of sellers paid £250 or less on repairs and only 10% spent more than £1,000, which supports this view. However, the survey also showed that, although sellers are not completing many repairs (36% of category 2 and 3 repairs identified in the Home Report), the majority of buyers (75%) are doing so.

The Home Report appears to have been successful in helping to address the issue of artificially low asking prices. Analysis of data from Solicitor Property Centres (SPCs) demonstrated that artificially low prices are not the problem they had been before 2008. However, poorer market conditions have also played a role here. The Home Report appears to be acting as a 'marker' for buyers in deciding the price to offer and in negotiations over price.

Recommendations

Based on the research findings, the following actions are recommended:

• the Home Report should be reduced in size, especially the property questionnaire
• a front summary page should be included, providing the key findings together with a clear explanation of what the Home Report is and is not
• more information and guidance should be provided to deal with misperceptions in order to manage buyer and seller expectations
• retain the current objectives, but consider a further objective around energy efficiency
• consider incorporating the classification in the energy report into the main repairs category to give it more prominence
• the Scottish Government should reconvene the Home Report Implementation Group to consider how conflicts of interest should be resolved and to provide guidance on how to avoid future conflicts.