Research to Inform the Five Year Review of the Home Report

6 Conclusions and Recommendations

Conclusions

Overall views on the Home Report - consumers and professionals

6.1 There was a clear pattern in satisfaction with the Home Report based on audience. Buyers and sellers were the most positive about the Home Report, with front-line housing industry professionals being most critical. There was some variation within audiences but this gives a broad overview of perceptions across the different interested parties.

6.2 It is likely that buyers and sellers were largely happy with the Home Report because, in most cases, the process of buying and/or selling a home proceeds smoothly. Where there were problems, these were most commonly due to issues arising with the property condition after they had purchased it.

6.3 Consumer advocacy stakeholders were the most positive of the professionals, focusing on the benefits that the Home Report can provide to consumers. Other stakeholders were more likely to raise concerns, the most common of which was about the relationship between the seller/agent, the surveyor and the buyer. There was feedback that this relationship is impacted by a 'conflict of interest'. The Home Report is produced for the buyer to make informed decisions about a particular property. However, the report is commissioned by the seller who has a vested interest in presenting the property in as positive a light as possible.

6.4 Front-line professionals were the most negative about the Home Report, with perceived conflicts of interest highlighted as the most fundamental problem. However, there were geographical differences, with those in Glasgow and Edinburgh tending to be more negative than those in the rest of Scotland.

Usage and understanding of the Home Report

6.5 Over the past five years the Home Report has become increasingly embedded in the property buying process in terms of awareness and increased usage. Buyers are looking at more Home Reports and looking at them earlier in the process.

6.6 Despite this, the research makes it clear that there is a disconnect between what the Home Report provides and what buyers think they are getting. Professionals believed that it was common for buyers to think that the Home Report was a guarantee of the condition of the property, which it is not.

Content and Process of the Home Report

6.7 The Home Report is seen as being too long, discouraging buyers from reading the document, and as containing language which is 'bland', encouraging the misunderstandings mentioned above. As a result, consumers need the report to contain more information that is of use and less of what they see as irrelevant, bland or superfluous information. They also need the key findings to be clearer and more obvious to locate.

6.8 In line with findings from the Interim Review, for buyers and sellers the process of getting a Home Report appeared to work well. However, some professionals felt that the introduction of the Home Report had made the process of marketing a property slower and more expensive to the seller.

Impact of the Home Report

6.9 The Home Report has had a positive impact on buyers. They are a great deal more informed than in the past, with the same information as all other potential buyers. This was reflected in an increase in confidence in the buying process, with particular regard to the property price.

6.10 There were benefits for sellers, particularly increasing confidence in the property price, while also providing a 'reality check' on property condition.

6.11 Professionals were concerned that a lack of transparency around the commissioning of the Home Report meant that most buyers were not aware of the pressures that could be placed upon surveyors by selling agents to provide a favourable report for the seller.

6.12 While the Home Report has had an impact on buyers and sellers, the impact on the wider housing market was more limited.

6.13 Some industry professionals believed that the introduction of the Home Report "prevented the housing market going through the floor" by stabilising house prices. However, the evidence from the secondary data showed that house prices for new build properties, which do not require a Home Report, also stabilised. There was also a trend for stabilised prices in the rest of the UK, which does not use the Home Report. This suggests that the stabilising of prices was due to wider market forces than the Home Report.

6.14 A number of professionals believed that the increase in transaction costs and the increase in time taken to market properties made it more difficult for low income sellers to put their property up for sale leading to a rise in repossessions. However, this was not borne out by data on repossessions, which indicate the numbers are falling, or by the fact that lenders have procedures in place to limit the number of people who will have to leave their homes.

6.15 While most professionals agreed that the Home Report slowed down the marketing process, some solicitors thought that it has improved their processes and procedures by giving them easier access to a lot of the paperwork they required, meaning that they could work more efficiently. Overall, though, this was thought to be of limited benefit as they still had to go through the process of checking all of the appropriate documentation.

The Home Report in different market conditions

6.16 Given that the housing market has largely been in a depressed condition (due to economic factors) since the Home Report was introduced, it is difficult to assess whether it works 'across the housing cycle as a whole' and whether there are different benefits and costs within different market conditions.

6.17 However, there were a number of issues worth highlighting.

• Buyers tended to use the Home Report valuation as a 'marker', but this could differ across markets. While professionals thought buyers saw it as a ceiling in a slow market, others who were working in areas with better growth thought that buyers were seeing the valuation as a minimum.
• A number of estate agents and surveyors thought that there was a capacity issue in the market (due to surveyors moving jobs or being reassigned in the downturn) and now that the market is improving, it is taking longer for Home Reports to be completed.
• The problem of additional surveys may lessen in a more buoyant market. If homes are selling faster, then sellers are less likely to require a Home Report refresh when an offer is made.
• The delay in marketing properties could become more problematic in a buoyant market. The market is already slow due to wider economic considerations but if it were to speed up, then delays due to the Home Report would have greater significance.

Meeting the Home Report's objectives

6.18 The objective of reducing multiple surveys has been achieved, a conclusion in line with the Interim Review. However, there is a new issue emerging around additional surveys, most commonly due to the requirements of mortgage lenders. Most professionals thought that this should be addressed as it meant that sellers were paying for additional refreshes on the Home Report or the buyer had to pay for a separate mortgage valuation based on the particular criteria of the mortgage lender. However, additional surveys can be useful and buyers should be encouraged to access more information about the property they wish to purchase where appropriate.

6.19 Although the Interim Review concluded that the Home Report would be likely to have a positive impact on stock conditions, there is insufficient evidence as to whether this is yet happening. Stakeholders hold mixed views on this issue but realise that it is a long-term goal.

6.20 It is clear from the research that the issue of artificially low asking prices has been reduced, building on the conclusions from the Interim Review. However, there was concern that this practice may resume when the market picks up.

Recommendations

6.21 These recommendations need to be considered by the Scottish Government. However, all organisations and professions involved in producing the Home Report must also be willing to work to ensure they happen. Recommendations fall into two categories:

6.22 Report content - improvements that can be made, primarily aimed at improving the information available to buyers and ensuring that the work involved in producing the reports is used more effectively.

6.23 Longer-term changes - changes with the relationships and workings between the different professions involved in producing the Home Report, to minimise conflicts of interest that are apparent to many professionals and stakeholders in the current system.

Report content

5.24 The Home Report needs to be shorter because professionals and national stakeholders think that its current length, on average over 40 pages, is off-putting to buyers and means that some important information is not being read. The property questionnaire is the part of the report which most urgently needs to be shorter.

6.25 The Home Report should include a one-page summary on the first page - this should detail the following information:

• the property value
• summary of repairs required (with repair categories)
• statement of report's purpose and status, in particular highlighting that the report is not a guarantee in the case of future condition issues.

6.26 The 'Terms and Conditions' should be at the end of the report.

6.27 More information/guidance about the Home Report directly addressing areas of misunderstanding (for example, that it is a visual survey only) should be available to buyers and sellers before they begin marketing or searching. This should be aimed at giving buyers and sellers realistic information about the Home Report in order to manage their expectations. Ideally, this information could appear on a range of websites, including the Scottish Government, RICS and SPCs.

6.28 Consideration should be given to the following changes to the Home Report's objectives:

• retain the objective on minimising multiple surveys but make it clear that additional surveys can be useful for buyers when required
• retain the objective on improving conditions. In order to measure this, consideration should be given to adding a new question to the Scottish Household Survey around the impact of the Home Report repair categories on buying/selling decisions, and
• retain the objective on eliminating artificially low asking prices.

6.29 The Energy Report could include the addition of the energy classifications expressed as repair categories in order that buyers and sellers are more aware of and focussed on this section of the report. This would mean, for example, that properties with F and G ratings would be classified as a category 3, D and E would be category 2 and A, B and C would be category one.

Operation of the Home Report

6.30 The report highlighted the conflicts of interest that exist in the current process of producing the Home Report. These exist on a number of levels and each need to be addressed.

6.31 This is likely to take a significant amount of time and involve detailed discussions with all professions and stakeholders. In order to begin this proves we recommend the following:

• the Scottish Government should reconvene the 'Home Report Implementation Group', inviting representatives from all relevant professions and stakeholders to attend
• the group should include full conflict of interest disclosure, and
• the group should work towards the publication of resolution of current conflicts of interest and guidance for the avoidance of future conflicts.