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The Home Information Pack

By Paul Michael
6th September, 2009

Background

The law has changed. Every residential property in England and Wales that is put onto the market for sale must have a Home Information Pack (HIP). So, what is a Home Information Pack (HIP) and why all the fuss?

  The HIP is a collation of compulsory and authorised documents for the property that is being marketed for sale. The HIP is arranged by the seller prior to marketing the property and provides up-front information to potential buyers.
  The required, compulsory documents in the pack include the relatively new Energy Performance Certificate, along with the more traditional Sales Statement, Standard Searches and Evidence of Title.
  At this time, the traditional items are typically procured by the buyer, via the buyer’s conveyancing solicitor, and after an offer on the property has been agreed in principle. It is recognised that many buyers tend to change their offer or pull out altogether when, having conducted searches and surveys, issues with the property are realised. For example, a local authority search might unveil a recent and unwelcome planning consent. By the time that some issues are realised, the buyer may have spent a significant sum of money in pursuing the sale, e.g. paying for local searches, services provided by their conveyancing solicitor, structural surveys and alike.
  The new requirement to provide an Energy Performance Certificate is a European obligation set upon its member countries in the wake of global warming and similar issues. Homes burn fossil fuels for heating, lighting and entertaining. Homes also lose energy through walls, windows, doors and the roof. Therefore, there is a growing concern that homes should be made to be more energy efficient and, in so doing, will burn less fuel resulting in a positive impact upon the environment.

  The government response to level the playing field and get the vital information out in the open at an early stage, along with the requirement to support environmental issues, is to obligate the seller to arrange a HIP before putting the property on the market.
  This change in the law has been fraught with problems and, within a couple of weeks of the original target date of 1st June 2007, the government put the plans on hold until 1st August 2007. A phased rollout was agreed, which was fully implemented by mid-December 2007.

Public Confidence for the HIP

There are strict rules for producing a HIP and, as you might expect, not everyone can produce the reports. For example, the Energy Performance Certificate must be produced by Domestic Energy Assessors who are certified by the government.
  Consider buying a used car with an expired MOT certificate. Sort of off-putting isn’t it? A car with many months of MOT suggests a better deal and a safer car. As with the HIP, the MOT is procured by the current owner, but, because the MOT is undertaken by government certificated and qualified mechanics, the MOT certificate holds high value for potential buyers. Over time, the HIP will hold a similar status for property sales.
  The downside and ‘yet to be tested’ aspect of this scenario is when the property is bought and the buyer later finds evidence contrary to what is stated in the HIP. Just like the MOT, the report provider could argue that it was as stated on the day that the report was produced and has since changed. However, there will be cases where the provider simply got it wrong or that it is unlikely that things had changed since the report was produced. It is at this juncture that the buyer deserves to be compensated for any losses incurred to put things right.
  Certification and redress schemes are very much par for the course with the HIP and report providers must be members of a redress scheme. Domestic Energy Assessors, for example, will be required by law to be members of one of several federations that maintain redress schemes. Also, if an estate agent is used, the agent becomes the ‘Responsible Person’ for ensuring there is a HIP for the property being marketed. The government now requires agents to be fully paid up members of a redress scheme. How long redress will take when things go wrong, time will tell. However, such occasions will hopefully be a rarity.  

Surveys

The much debated Home Condition Report has now been reduced to an ‘Authorised’ document where it was to be ‘Compulsory’. The Home Condition Report is a survey that includes an Energy Performance Certificate. Its detail and granularity lies somewhere between the lesser Valuation Report, as used by money lenders to value a property in considering mortgage applications, and the more extensive Structural Survey that a buyer might request to inspect older properties. The Home Condition Report highlights issues that might need further attention and so would be a welcome document for any potential buyer. The main reason for not making the Home Condition Report compulsory is the cost, which is partly due to the little supply and much demand economics that would ensue if it were made compulsory from out-set. It would significantly increase the up-front cost of selling residential property, perhaps destabilising the market. However, sellers can, if they wish, include a Home Condition Report with their HIP, so long as it is produced by a certificated and qualified practitioner.

The Benefits and Issues

There is a shift of responsibility with the HIP from what the buyer does today, to what the seller is required to do by law from August and onwards.
Today, buyers pay good money for reports on an unknown property and the findings of the reports may convey unwelcome news. With the new process, sellers will pay good money for reports on a property they currently own. There is a small gain here because, armed with the information, the seller can put right any major issues and also determine an appropriate marketing strategy. The down-side is that the seller pays for the HIP, which may be required up-front, and this makes testing the market out of the reach for many people. There is of course an upside to this aspect in that most sellers will be serious sellers.
  Most sellers go on to become buyers. So the HIP is burden insofar as it needs to be undertaken up-front by the seller, but it can also be viewed as removing a number of delays and potential obstacles, even show-stoppers, when trying to buy property.
  The HIP should speed up the sale once an offer has been mutually agreed. For starters, much of the required documentation that can take quite a while to process and gather is already done. The buyer will have up-front opportunity to study the documentation and ask as many questions as is necessary to resolve any issues. The buyer will need to organise some sort of survey, which is no change from today and is undertaken at the expense of the buyer. Also, the conveyancing solicitors are still required to draw up contracts and exchange them for signing. This leaves the current delay associated with just these items in the process.
  The potential buyer may want to look at one or two documents within the HIP while viewing a property. A buyer can also demand a legitimate copy of the HIP from the seller or the seller’s agent. A seller can refuse the demand only on certain grounds, for example, if it is obvious that the potential buyer has not the financial means to buy the property. Otherwise, the HIP must be readily available to all potential buyers within reasonable time-scales. The seller may levy a fee to cover he cost of photo-copying and such like. The seller may also provide the HIP via electronic means such as e-mail.

'opportunities to gazump remain in the process'

  Gazumping, the unscrupulous act of accepting a higher offer after already mutually agreeing an offer with another buyer, can still exist. There were high hopes amongst many that the HIP laws would be rid of gazumping, but opportunities to gazump remain in the process, particularly when the buyer is arranging a survey.

  The Energy Performance Certificate may prove to be a red herring. Consider buying a pre-1950s home. It is unlikely to have cavity walls and such things as damp-proofing may be less than desirable. This construction method is likely to require more fuel to maintain room temperature than for the same sized home built of more modern construction methods. Do we need an Energy Performance Certificate to tell us the obvious? Should we knock down everything old or levy significant taxes on such properties on the basis that they are not very green? The EPC is likely to provide information on the property’s heating appliances and how energy efficient these items are, but again, is this something we can judge ourselves by looking and guessing how old each item is? As a general rule of thumb, the older it is the less efficient it is likely to be.
  The EPC is likely to provide information of how to make the home more energy efficient. So, can we guess the outcome? Perhaps, go and buy a new boiler? What about putting loads of insulation in the loft? Get that Economy 7 system changed?
  Perhaps we are being too cynical, but if energy performance is an issue then the government should be providing grants for all homes to have an EPC whether or not a home is put up for sale. If the government is serious then the we foresee that many fine old homes will stand derelict, perhaps with a new home in what was their back garden, because the energy taxes that the government will inevitably levy on such properties, just like 4-wheel-drive motors today, will make them unaffordable and undesirable to the masses.

'The Energy Performance Certificate may prove to be a red herring'

How to Arrange a HIP

It is most likely that estate agents will be the main thrust for arranging HIPs. Conveyancing firms and money lenders will be able to provide the same services and sellers will also be able to arrange their own HIP.
  The advantage of having an estate agent arrange the HIP is that they are likely to offer the service as an ‘all-in’ deal that you pay for after the sale completes. This seems an attractive proposition because there are no up-front costs. However, sellers should consider the ‘locked-in’ constraints of such deals. It will be more difficult and certainly more costly to back away from an under-performing agent. Some agents are already offering seemingly free HIP services. This simply means that these agents will support the cost of the HIP from the commission charge they levy upon completion of sale. It also means that these agents may charge a little more commission and that there are clauses to ensure that sellers pay for the HIP if they should back away from the agent at any time.
  Also, armed with the information in the HIP reports, the agent could try to cajole sellers into lowering their price. For example, many older homes will have poorer Energy Performance Certificates than for newer homes. Estate agents could use or even massage this information to seduce the inexperienced home seller to reduce the selling price. They can massage the same information to paint an entirely different picture to the inexperienced home buyer and therefore make a quick sale that is not in the interests of the seller, but is very much in the interest of the agent in receiving their commission - quickly.

'armed with the information in the HIP reports, the agent could try to cajole sellers into lowering their price'

  Some of the bigger agent chains may be bold enough to refuse to market a property where the seller insists on obtaining their HIP from another provider. They are likely to argue this on the basis that the law holds the agent as, ‘The Responsible Person’, for ensuring that a HIP is ready and in place prior to marketing. However, the law does not require that the agent must provide the HIP; just that the HIP exists.
  Similar HIP services and deals may be available from conveyancing or money lending firms. These firms have no direct interest in the sale of a property, as their fees are not commission based. However, they traditionally tend to provide their services near the end of the long and winding road to a property sale. For example, although a mortgage may be needed to move to a new property, a money lender is not normally engaged until after an offer is made on the existing property and the seller becomes a serious buyer and needs to know how much they can borrow for their new home. This is the similar for conveyancing firms. Therefore, buying HIP services from these firms suggests that sellers need to engage with them much sooner than normal. This isn’t necessarily a bad thing because often is the case that sellers, upon actually receiving a favourable offer, then proceed to fumble about and waste lots of time finding a conveyancing firm and arranging a mortgage. Sellers might also be receiving a good service from their current lender so it may pay to talk with them and find out what services are on offer.
  Estate agents, conveyancing and money lending firms do not actually ‘do’ the HIP. They simply arrange the HIP via the various bodies that provide each report. They engage with Domestic Energy Assessors, local authorities and the Land Registry, or even a HIP provider service, who each provide the compulsory reports. So, if they can do this, so can the seller. Also, consider that estate agents, conveyancing and money lending firms charge for playing the middle-man for a service that sellers should be able to get direct.

The DIY HIP

We investigated how easy it is right now for anyone to arrange their own HIP. We visited the HIP official web site (http://www.homeinformationpack.gov.uk) and read through the pages they have dedicated to self-producing a HIP. We followed the advice in the order it is listed.

An index: showing what documents are in the Pack. The HIP site has a form that can be downloaded for this and the seller can complete the form.
A Sale Statement is a summary of the sale particulars and a form is available from the HIP site which can be completed by the seller.

Evidence of Title: to the property can be obtained from the Land Registry (http://www.landregisteronline.gov.uk) and comprises two documents, each priced at £3: the Title Register and the Title Plan. This can be achieved on-line by the seller.

Local Search: we snooped Caradon District Council’s (East Cornwall Area) web site for their provisions for HIP searches. The site listed lots of search services but it wasn’t clear which type of search is required for our HIP. The charges ranged from £11 for a Personal Search to £95 for a Local Land Charge search. Things get a bit confusing here because there is little clarity and information on the forms that need completing and documents that need sending and where to get them. This is hardly the sort of service you could pick up the phone and order. We checked some other council web sites and found a similar story. Other councils may be better at this.

Drainage and Water Search: it is a similar procedure for the local water and sewer searches. This service is provided by the local water board at a cost of £25 and, again, forms need to be completed which don’t appear to be readily available.

Thank goodness then that the HIP site suggests using the channels of the National Land Information Service, who’s partners can provide an all-in-one search combining evidence of title, land charges search, water and sewer searches. It’s hardly surprising that with all the confusion of what searches are required and where to get them, private enterprise comes to the rescue with a sensible approach. However, the service is geared towards those in the business of house selling and conveyancing, as this has typically been the tradition. We found no demonstration of this service being readily available to the private home seller via any of the channel partners. Our hopes and expectations take a turn for the worse.
  At this point sellers might seriously consider procuring the searches from their conveyancing solicitor, and who could blame them? It is quite disappointing that search services, which after all are standard service packages and not tailored to each individual request, are not readily available from the phone book or web search in the same way as arranging a MOT.

Energy Performance Certificate: this is the minimum requirement of the HIP and the seller could purchase a Home Condition Report which includes the Energy Performance Certificate. From the HIP web site we followed the link to their Domestic Energy Assessors pages. We were hoping to find at least someone that we could phone up and make arrangements with. We found a list of hyperlinks that disappointingly got us no-where and even more confused.
We took one of the links to the Royal Institute of Chartered Surveyors (RICS), but, aside from informing us all about RICS, provided us no list of EPC service providers. This was the organisation that successfully delayed the HIP as part of a judicial review. Yet, RICS has no-one that we can contact and get an EPC.

  So, after all this, sellers may now be justified in considering the complete HIP package to save them all the leg work. So, let’s follow this trail of thought: we want to look in the phone book or undertake a web search for HIP service providers. To cut a long story short, there are very few, if any, that are dedicated to the private seller trying to arrange a HIP. Visit the HIP Association Members web site (http://www.hipassociation.co.uk/members) and it can be seen that all of members provide HIP services for the home selling and conveyancing professional, not for the private seller.
  We came full circle back to the limited choice of arranging a HIP via the seller’s estate agent or the conveyancing solicitor. This is like having to place a car into the hands of a car expert in order for them to arrange its MOT test through a MOT testing station.
  From our findings we conclude that the HIP provider marketplace exists but is geared up to enhance the current cash-flows within the property sales industry. The HIP is a cost burden to sellers, but the infrastructure is being developed in such a way that sellers will pay more than is necessary to obtain a standard HIP. There is no immediate reason why a property owner should not be able to look up a firm to provide the complete HIP or selective parts of it.

'the HIP provider marketplace exists but is geared up to enhance the current cash-flows within the property sales industry'

  We got in contact with the CLG (home of the HIP) and the National Land Information Service (NLIS) and asked them to provide a list of providers that support non-commercial requests for HIP or the required HIP searches. The NLIS declined to respond. The CLG advised that we visit the HIP Association web site. We did so once again, just to make sure that it hadn’t been updated or something, but no. We wrote back to the CLG asking them to suggest a firm offering the service, but we didn’t get a timely reply. To be fair though, we wrote in the thick of the delays being set in motion from the outcome of the RICS judicial review, so the CLG may have been too busy doing other things.
  Hopefully, the delays and the phasing in of the HIP will allow more time for service providers to be set up for the private seller or anyone wishing to request a HIP independently of their estate agent or conveyancing and money lending firms.

Conclusion

We believe that the HIP is the start of a better home-buying process and can alleviate many of the current issues that are faced when receiving undesirable information too far down the road to purchasing. Buyers get the up-front information they need to make informed decisions. Over time, this process is likely to gain consumer confidence and has every chance of improving.
  The cost has to be met by the seller but, given that most sellers become buyers, this up-front cost is less of a risk than the buyer having to procure similar documents for a property sale that may fold.
  We are concerned that the marketplace for buying HIP services is currently geared towards property industry players and is seemingly not reaching out to the private seller or those who wish to obtain their HIP independently of the agent, conveyancing or money lending firms.
  Hopefully, the delays imposed by the RICS judicial review will enable the HIP provider market to increase its scope in readiness for the final phases of rollout.

 

 

 

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