I’ve been a bit of an unashamed Fan Boy of Home Reports for the past couple of years, having been a bit of a cynic prior to their release.
Before I go on to the main topic of this post, what are the benefits that I see in Home Reports?
I think that they have helped to give property buyers some confidence as to what properties are worth. They’ve also been beneficial in helping to flag up structural or other material matters not only to the property buyer but also to the property seller prior to them putting their property on the market: this can only help to raise the general standard of properties that do make their way to the market. Not only that but it’s helped property sellers to be a bit more realistic about what their property is worth and has, from my firm’s point of view as solicitor/estate agents, helped to bring some kind of end to the system where our competitors would over-value properties in an attempt to win the property seller’s business.
What of the Allegation That Lenders Are Not Accepting Home Reports for the Buyer’s Mortgage?
We haven’t found that the lenders’ attitudes towards Home Reports have been as bad as some other solicitors have been making out in the last year or two. The major UK-based lenders, and in particular the major Scottish-based (or formerly Scottish-based!) lenders, have seemed to be quite content with Home Reports pretty much from the outset as long as they were from a reputable firm of surveyors that was represented on that lender’s panel of approved surveyors. There are certain lenders who aren’t accepting Home Reports, regardless of which surveyor carried-out the Home Report. However, my experience was that these lenders very often would only accept a survey by their own surveyors even prior to Home Reports (Abbey, now part of Santander, were an example of this). This does of course slightly reduce usefulness of the Home Report to the buyer but it’s still a fairly limited number of lenders who do this in our experience.
Why Then Are Solicitors Submitting Offers ‘Subject to Survey’ Again? Was This Not the Way We Got Around Multiple Surveys in the Pre-Home Report Era?
Prior to the introduction of Home Reports, solicitors would often submit offers on behalf of their clients that were ‘subject to the buyer obtaining a satisfactory survey’ on the property (a ‘survey clause’). This allowed the parties to agree on the major areas of the offer (price, date of entry, liability for repairs and the like) before the buyer committed to purchasing a survey on the property. On the assumption that the property seller accepted the offer, the buyer arranged for the survey to be obtained and the convention amongst solicitors meant that the seller’s solicitor could not accept an offer from another buyer until the potential buyer had obtained the survey and had an opportunity to ‘clean’ up their offer. The problem was that the ‘survey clause’ was drafted so that the decision as to what constituted a satisfactory survey was ‘at the sole discretion’ of the potential buyer. Of course, in the meantime the seller was effectively taking the property off the market for a few days.
So, what should the effect of the Home Report have been on this system? Well, there’s already a survey contained in the Home Report and you can only presume that the seller believes that it’s an accurate reflection of the property’s condition and value. Therefore, if the potential buyer wants to obtain their own survey on the property, it’s really a question of negotiating position and how keen the seller is to sell the property to that particular property buyer as to what the seller does: do they insist on leaving the property on the market and risk the potential buyer walking away from the offer because they in turn don’t want to risk paying for their own survey when there’s a chance that the property could be sold to somebody else in the meantime?
However, that situation is actually still relatively rare: buyers in my experience are generally fairly content to accept the valuation in the Home Report. So what is actually happening is that buyers’ solicitors are submitting offers ‘subject to survey’ or ‘subject to approval of the Home Report by the buyer’s lender’. A condition like this is known as a ‘suspensive condition and removing it from an offer is referred to as ‘purifying’ the offer, making the offer ‘clean’, ‘cleaning-up the offer’ etc)’. In other words, a property seller can accept the offer with that clause in it. However, until the buyer removes this clause from the offer then, in a way, there’s not really an offer actually there as far as the seller is concerned because it’s totally in the buyer’s control as to whether that clause is removed.
So, Why Are Solicitors Submitting Offers ‘Subject to Approval of the Home Report’ and What Problems Does This Cause for Property Sellers?
It seems to be in place of either the solicitor, or their property buyer client, taking the time to find out, prior to making an offer on the property, whether the lender will actually accept the Home Report for lending purposes.
The problem for property sellers arises from the anti-gazumping guidelines of the Law Society of Scotland (http://robert-carroll.co.uk/gazumping-in-scotland-why-it-doesnt-tend-to-happen/). In brief, once a solicitor has accepted an offer on behalf of a client then s/he cannot accept an offer from another buyer on behalf of the property seller. Of course, the seller’s solicitor has to take that offer to their client. However, if a client wishes to accept that second offer then they need to instruct another solicitor as their original selling solicitor/estate agent will have to withdraw from acting because of the Law Society anti-gazumping guidelines. There can now be a delay of several days, and sometimes weeks, between a property seller accepting an offer in principle and the buyer’s solicitor then coming back to let their own solicitor/estate agent know that the lender has in fact accepted the Home Report for lending purposes.
This causes property sellers and their solicitors problems as they are just left hanging in this period and cannot accept an offer from another party on their client’s behalf even if a better, non-conditional offer comes to them in the meantime. Unlike prior to Home Reports where there was a clear financial incentive to buyers not to obtain a survey until their offer was accepted in principle, the only reason that I can think of now is that it saves the potential buyer and their solicitor a bit of time. Of course, because property sellers are afraid to lose an offer if they don’t go along with it, it does often persuade them to ‘take the property off the market’ for a while to give the potential buyer time to check the position with their lender. As such, it makes it less likely that the seller will sell the property to somebody else in the days that it might take for the buyer to get an answer from their lender. I can therefore fully understand why solicitors put offers in to sellers’ agents in this format: as long as sellers don’t reject this type of property en masse then it is of benefit to the buyer to submit the offer in this format because it reduces the risk of the property being sold in the meantime. However, it is quite detrimental to the property seller.
Personally, I can’t see why a seller should take their property off the market until such times as they have a clean offer on the table. Obviously everything depends on the negotiating position and if a property has been on the market for two years, suddenly a buyer comes forward and they won’t go to their lender to see if they’ll approve the Home Report unless the property is taken off the market then what would you do…? However, in normal circumstances and particularly with properties that are attracting good interest, all of this has led to us recommending that our clients take quite a hard line towards such offers. Essentially, in most instances we would probably recommend that property sellers reject any offer that is ‘subject to approval of the Home Report by the lender’ until such times as the offer no longer contains that clause, leaving them open to accept another offer from another party if one is forthcoming in the meantime that is not ‘subject to survey/approval of the Home Report’.
It’s a shame to see such a return to the ‘bad old days’ where the seller is sitting in limbo for a few days after accepting an offer, particularly where the buyer has nothing to lose, financially, from making sure of their lender’s position towards that particular surveyor’s Home Reports prior to submitting an offer. It’s a shame in particular to see these clauses being inserted as a matter of course by some solicitors in all of their offers (some indeed put a ‘subject to survey’ clause in, instead of a ‘subject to approval of the Home Report’ clause, even when their client has no intention of obtaining their own survey). All it causes is doubt and some considerable delay in the process and, in some cases, a bit of animosity between seller and buyer (and their solicitors) then the seller takes a relatively hard line towards that clause and rejects the offer.
Time will tell if this is something that’s here with us to stay.