Personal Finance: Sellers to pay the price of reform

Planned changes in housing market will not eliminate gazumping

THE GOVERNMENT plans to make sellers of residential property, or their estate agents, supply all potential buyers with an advance package of information. It would include copies of the title deeds, details of planning consents and any warranties, the terms and conditions of any leases and restrictions on use, the results of routine searches of Land Registry and local authority records and, above all, a professional survey, pointing out all significant defects and paid for by the seller.

The objective is to speed up the process of buying and selling property that causes so much aggravation to buyers and sellers alike. In England and Wales, this takes an average of 12 weeks, or twice as long as in the US and most other European states. Almost 30 per cent of sales fail to go through, largely because of problems caused by the lack of essential information when offers are made.

The proposals have been widely welcomed by consumer groups, estate agents, mortgage lenders and especially surveyors, who stand to make an estimated pounds 300m a year extra from carrying out the required surveys.

The proposal will transfer the costs of carrying out local authority and Land Registry searches, costing an average of pounds 100, from buyers to sellers. It will also add an average of pounds 350 to the total cost of most sales because, out of an average 1.4 million housing transactions a year, only 40 per cent of buyers commission any kind of report on properties they plan to buy.

Mortgage lenders require a "valuation" costing on average about pounds 150, for which buyers pay, to assure lenders that there are no major problems if the lender has to repossess and resell it. These valuations provide the information on which the maximum amount the lender will lend is based. But the buyer has no right to see the contents of the valuation report and the existence of a valuation does not offer buyers any guarantee that the property they plan to buy is worth what they pay for it.

Buyers who want any kind of information about the property have to commission and pay for a house-buyer's report detailing defects that could affect the value of the property, or a full structural survey. Costs vary according to the size of the property as well as its value and the Office of Fair Trading some years ago outlawed a formal scale of charges. It is therefore worth shopping around before authorising a report or survey but, as a rule of thumb, a report should cost around pounds 250 and a full survey about pounds 350 on a typical property costing around pounds 70,000, according to the Royal Institute of Chartered Surveyors.

Buying a property without a housebuyer's report or a survey may well be a false economy, because surveyors can be sued for negligence if they fail to point out serious defects. If the Government's proposals are adopted buyers must pay for the lender's valuation but the seller will have to pay for a buyer's report or survey. The survey itself and the right to redress if it is misleading, will then become the property of the successful buyer.

Requiring would-be sellers to pay for a survey should discourage property owners from putting their property on the market just to test the water with no real intention of selling. But paying a few hundred pounds for a survey will not stop gazumping if prices are rising rapidly. It could even encourage gazundering, where buyers reduce an offer at a late stage, because it would be sellers who are already out of pocket if a deal falls through.

There are other issues to iron out. Should the proposed package be voluntary or compulsory, especially for owners who want to sell their property privately without involving an estate agent? Can buyers be certain that a survey commissioned by the seller is not biased in the seller's favour? How long should a survey remain current before it is updated?

The report also looked at ways of introducing binding contracts but saw potential problems in all versions. Penalising gazumping and gazundering would encourage one side or the other to find other ways to delay deals that they no longer wanted to go through with. A system where buyers and sellers agree to pay each other's costs if they withdraw from a deal found more favour but it could still lead to problems in allocating blame, especially where the primary cause was the delay caused by a chain of deals.

The seller's package would do nothing by itself to break the chains, which cause many of the delays between the acceptance of the buyer's offer and the completion of the contract. The report also thinks mortgage lenders could do more to break chains by adding the cost of any bridging finance to the mortgage and allowing it to be repaid over the life of the loan.

There is also a case for specialist lenders to buy properties that are delaying a series of other transactions and resell when the logjam is broken. But that is quite another story.