2011 Q3 Conveyancing Periodical - Let The Conveyancer Beware!

October 2011

by Graham Ellis

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For years "let the buyer beware" has been the clarion call supporting the home buying and selling process. But, arguably, when it comes to advising buyer clients should it be "let the conveyancer beware?"

We all know that the best advice is for a buyer to have a survey undertaken. It makes total sense. But statistics show that about four out of five buyers will commit to spending hundreds of thousands of pounds on their new 'home sweet home' without obtaining their own survey. Then all too often their 'home sweet home' becomes a 'house of horrors'.

And, who do they look to when they discover the leaking roof, the rusted water cistern, the asbestos flue, the dangerous electrics, the flooded garage, the woodworm in the roof space, the rusted lintel, the blocked drain, the leaning retaining wall?

Well, having failed to follow the advice on the limitation of the lender's valuation offered in the CML Lenders' Handbook, produced in association with First Title's HOPP, it could be YOU - their conveyancer.

Section 4.4 of the Handbook looms large in England and Wales:

"When a home condition report is not provided we recommend that you should advise the borrower that there may be defects in the property which are not revealed by the inspection carried out by our valuer and there may be omissions or inaccuracies in the report which do not matter to us but which would matter to the borrower. We recommend that, if we send a copy of a valuation report that we have obtained, you should also advise the borrower that the borrower should not rely on the report in deciding whether to proceed with the purchase and that he obtains his own more detailed report on the condition and value of the property, based on a fuller inspection, to enable him to decide whether the property is suitable for his purposes."

Whilst the demise of the Home Information Pack renders the reference to a home condition report irrelevant the instructions are unequivocal:

"....we recommend that you should advise the borrower that there may be defects in the property which are not revealed by the inspection carried out by our valuer and there may be omissions or inaccuracies in the report which do not matter to us but which would matter to the borrower. ......"

This clearly sets out that borrowers should be advised that the property may have defects which are not revealed by the inspection carried out by the lender's valuer. The inspection required for the purposes of a valuation report is substantially less than as required for the purposes of a survey.

Again, the Handbook is clear: "We recommend that, if we send a copy of a valuation report that we have obtained, you should also advise the borrower that the borrower should not rely on the report in deciding whether to proceed with the purchase..."

The borrower should not rely on a copy of the valuation report. A valuation report is NOT a survey. However, how many conveyancers have relied upon the valuer's report? Do you know how many lenders now use desktop valuations or automated valuation models? These create valuations based on previous data and risk modelling. If the valuation is not based on a physical inspection how can it possibly highlight defects in the property?

The Handbook continues: "....and that he obtains his own more detailed report on the condition and value of the property, based on a fuller inspection..."

This is where members of the Royal Institution of Chartered Surveyors (RICS) can help conveyancers fulfil their professional obligations in ensuring the client is given the right sort of advice in obtaining a more detailed report.

The Law Society gives similar advice to buyers:

"If you are applying for a mortgage, your mortgage lender will need an independent valuation of the property. Usually they will appoint their own surveyor to do this, and you will have to pay for it. Remember that this is a valuation for mortgage purposes and not a survey. You should consider appointing your own surveyor to carry out a survey or prepare a home buyers report on the property. It is up to you to satisfy yourself that the property is structurally sound before you buy it. If the survey or report reveals that building work is needed, you should tell your solicitor. You may wish to renegotiate the price."

The ideal situation is to ensure that, not only does your buyer client get advice from the correct advisers but that the handover between those advisers means that the advice given is 'informed' advice. This is borne out by the Cottingham Case which indicated that if the surveyor has given opinion on the basis that 'Local Authority Consents have been obtained in respect of alterations at the property' if the conveyancer becomes aware that such consents are not available then they simply need to ask the surveyor to confirm that their advice would not alter in light of this information.

By working closely with RICS members, conveyancers can ensure would-be buyers are properly advised as to what survey they should have at an early stage.

For its part, RICS now offers buyers (and sellers) a choice of three consumer-and conveyancer-friendly services in its new RICS Home Surveys range. Each one is tailored to clients' particular requirements and circumstances depending on the type of property they're considering, ensuring that no buyer (or seller) will be left exposed.

Until now the choice of survey services has been almost entirely aimed at buyers with the limited choice of either a Home Buyer Report (HBR) or a building (structural) survey (BS).

RICS has now introduced a Condition Report to complement these existing options, which meets a need in the market for  a 'matter of fact' assessment of the condition of a property.

As with the other surveys the Condition Report is based on a thorough, though slightly reduced, visual inspection of the outside and inside of the property. The report will flag up (using red and amber 'traffic lights') defects that are either serious and/or need to be repaired, replaced or investigated urgently, or that need repairing or replacing but are not considered to be either serious or urgent. A green 'traffic light' will indicate where no repair is currently needed. The report is not intended to give any advice beyond that which the other surveys do, nor does it include an opinion of valuation which is currently a standard part of the HBR service. The minimalist content of the report means that it can cost less than the HBR or BS, although the choice of which survey to have should not be down to cost alone.

Buyers can discuss their requirements with the surveyor and be guided by the type of property they are thinking of purchasing in terms of its age, size, history, construction, apparent condition, and any concerns they may have. For instance the Condition Report is probably best suited to smaller, modern, traditionally-built estate type properties which do not appear to be in too bad a condition whereas a building survey is more suited to properties which are of unusual construction or character, run-down and in need of major conversion or renovation, or have been significantly altered.

Furthermore, surveyors will pick up on legal issues giving a real opportunity for conveyancers and surveyors to work closely together for   the benefit of shared clients, to an extent that doesn't always happen at the moment. They may also help conveyancers sleep more easily at night knowing that clients have been properly advised when it comes to satisfying the requirements in the CML Lenders' Handbook.

Graham Ellis BSc MRICS, is Associate Director RICS Professional Groups (Residential) gellis@rics.org and Director, Greenhouse Surveyors Ltd gellis@greenhousesurveyors.co.uk

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