Home reports failing to
HOME sellers could risk seeing their valuations slashed if they fail to do their homework on home reports, experts have warned.
The home report system has been dogged by controversy since its December 2008 inception over lenders rejecting home report valuations – and as house prices decline again the implications for sellers could be increasingly costly.
The lenders that dominate the mortgage market in Scotland – including Lloyds Banking Group, Santander, RBS and Clydesdale – only accept reports from surveyors on their panels, and buyers have to fork out hundreds of pounds for a new survey when the initial one is rejected. The most recent research by the Edinburgh Solicitors Property Centre (ESPC) found that lenders reject up to one in four surveys.
And it’s not just buyers paying the price for rejected reports, as
“This means the buyer has to instruct their own survey ”
there is evidence that secondopinion valuations typically produce a lower figure, often forcing the seller to reduce their asking price.
Home reports – which comprise an energy efficiency report, a “single survey” and a property questionnaire – are commissioned and paid for by the seller. But while the survey, which is a condition assessment that also includes the valuation, must by law be undertaken and completed by a qualified Rics surveyor, several Scottish surveyors are not on the vital lender panels.
Surveyors are not obliged to tell sellers which lender panels they are on – although solicitors and estate agents generally know – while lenders don’t disclose which surveyors they accept reports from. The composition of lender panels can change regularly, but the big lenders all insist that the bigger surveyors are represented. Lloyds Banking Group is understood to have about three-quarters of Scotland’s conveyancing firms on its panel.
When a valuation isn’t accepted – either because the report is more than three months old or because the surveyor isn’t on the lender’s panel – the buyer will either be asked to commission a new one or the lender will instruct its own survey. The latter is at additional cost to the buyer, who has to fork out for both the new survey and an additional administration fee added by the lender.
Sellers lose out as well if the survey instructed by the buyer provides a lower valuation – as is typically the outcome. Where the lender bases the mortgage on the valuation in the report rather than on the purchase price, the difference can suddenly become very relevant – potentially putting the sale at risk.
David Morrans, director of Honour Financial Planning, said that in two of the three most recent mortgages his firm had handled, the single survey was useless as the surveyor was not on the lender’s panel. In the most recent case, the surveyor was only on the panel of two small building societies.
“This means the buyer has to instruct their own survey and pick up the tab and frequently this throws up a lower valuation, which is extremely relevant when lenders base borrowing on a percentage of the valuation, not the purchase price,” Morrans said.
“This can lead to the price being renegotiated downward, costing the seller money and/or jeopardising the sale.”
Research carried out by GraemeMcCormick, senior partner at Conveyancing Direct, found that of 100 reports in which his firm had been involved, there were 61 cases where buyers needed a new survey, and they produced a valuation lower than that in the home report on 31 occasions. The remainder gave the same valuation and not once was the revised figure higher.
The prospect of paying for a new valuation may also influence the decision of buyers looking at more than one property, to the detriment of sellers who commissioned a rejected survey, said Robert Carroll, managing director and solicitor at Mov8 Real Estate.
“When a buyer has to pay for their own survey it does make the property less attractive compared with one where the home report is acceptable to their lender,” he said.
The risk of valuations being
A surveyor carries out his assessments for inclusion in a home