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Home Information Packs
THE decision to introduce Home Information Packs (Hips) in England and Wales is the Government's response to years of complaints from property buyers and sellers that the present system is inefficient, wasteful and slow.
From 1 June 2007 home owners or whoever sells on their behalf must have a Hip ready when the property goes on the market and give copies of the pack to prospective buyers who request them.
The Office of The Deputy Prime Minister (ODPM) is responsible for the new regime. It says Hips will ensure important information is provided up front at the very start, and electronic conveyancing will speed up the transaction once a sale has been agreed. 'Taken together, both of these measures will help create a faster and more efficient home buying and selling system.'
What will the home information pack contain?
The pack will include the following documents, most of which are currently provided later in the sale:
• terms of sale
• evidence of title
• replies to standard preliminary enquiries made on behalf of buyers
• copies of any planning, listed building and building regulations consents and approvals
• for new properties, copies of warranties and guarantees
• any guarantees for work carried out on the property
• replies to local searches
• a home condition report based on a professional survey of the property, including an energy efficiency assessment.
Also, for leasehold properties:• a copy of the lease
• most recent service charge accounts and receipts
• building insurance policy details and payment receipts
• regulations made by the landlord or management company
• memorandum and articles of the landlord or management company.
How will the changes help?
They are designed to ensure that buyers and sellers are better prepared and have as much information as possible from the start, thereby securing faster mortgage offers and search replies, reducing delays that can lead to gazumping and problems in chains.
Will failure to provide a home information pack be a criminal offence?
No, but there will be enforcement based on civil sanctions. Trading Standards Officers will have the discretion to determine appropriate action in each case - whether to provide information and assistance, issue a warning or a fixed penalty, probably £200. In addition, a breach of the Hip rules could leave home sellers open to being sued by prospective buyers.
By how much will the new system speed up transactions?
The ODPM says a typical transaction takes eight weeks from offer acceptance to exchange of contracts. It says the amount of time saved would depend on factors such as whether the transaction is part of a chain but there is no reason why the average time cannot be halved.
Will the packs add to the cost of buying and selling, and who will pay?
The cost of preparing a pack for an average home is expected to be £635. The ODPM says these are not additional costs, because most of the changes involve doing the same things earlier in the process. The seller will pay, but this will be balanced out because the vast majority of sellers are also buyers.
What about sellers who cannot afford the up-front costs?
It should be possible to defer payment of all, or some of the costs until the property is sold, as happens with estate agents' fees in many places.
What are the benefits of the home information pack?
According to the ODPM, the packs will:• help the seller decide on a realistic asking price
• give the buyer the essential information needed to make a well-informed offer and proceed with the purchase
• greatly reduce the risk of the terms having to be renegotiated due to later disclosure of information, e.g. about any defects
• shorten the period of uncertainty between offer acceptance and exchange of contracts, thereby reducing the window in which gazumping and other problems can occur.
Won't preparing the pack simply shift delays to the beginning of the process?
A pack must be ready before a property is put on the market, but the ODPM says its testing of the new regime shows the information can be collated in less than 10 working days and it expects this to be reduced in future. But the ODPM adds: 'In cases where, despite best efforts, information required for the pack cannot be obtained reasonably quickly, the property will be able to be marketed with an incomplete pack.'
Isn't it unfair to put all this extra responsibility on sellers?
The ODPM says there are benefits to the seller, as well as the buyer, in assembling as much information as possible up front:
• it helps the seller decide on a realistic asking price
• it greatly reduces the risk that a buyer will want to renegotiate the terms in the light of information which at present is not disclosed until a later stage, e.g. any defects revealed by a survey or search
• it offers earlier certainty by shortening the period between offer acceptance and exchange of contracts.
Who will actually compile the home information pack?
The person marketing the property will be responsible for ensuring that the pack is available. This would normally be the seller's estate agent but could be a builder, property developer, solicitor, or the sellers if they are not using an estate agent.
Will anyone be exempt?
The pack will not be required for private sales, such as to a family member, a neighbour or friend, where the property is not offered on the open market. Sales of tenanted property where the home is not offered with vacant possession, will also be exempt, as will non-residential property; mixed commercial and residential property, and portfolios of properties.
Searches included in the pack go out of date, will sellers have to renew them?
Search results are generally accepted for up to six months. However, sellers will not be required to renew a search after this period.
What will the home condition report cover?
The report will be in a standard format covering the general condition of the property taking account of its age, character and location; how energy efficient it is; and any defects or other matters requiring attention.
Will the home condition report include a valuation?
No. The ODPM says including a valuation would interfere with the usual bargaining process. It believes local estate agents are often in the best position to advise sellers on value.
What will the home condition report cost?
The price will reflect the time the inspector needs, which will depend on the size and complexity of the property. The cost of a report on a typical 1930s three-bedroom semi-detached house located in a provincial town could be £270-320, says the ODPM.
But will buyers trust a report commissioned by the seller?
Only inspectors qualifying under an approved certification scheme will be able to prepare home condition reports. The scheme will be responsible for monitoring and auditing inspectors' work to ensure that standards are maintained. If inspectors fail to maintain the correct standard or act in a way that is partial to one party contrary to the rules of the scheme, their certification will be removed, which would effectively put them out of a job. They would also run the risk of being sued by buyer, seller or lender.
Will mortgage lenders trust the home condition report?
Lenders have been involved in designing the report and will be represented on the certification scheme. They will still have a right to ask for a separate valuation inspection but these are expected to become much less common.
Won't home condition reports become out of date and have to be repeated?
There will be no requirement for sellers to renew the report. A decision on whether a report needs to be updated is best left to buyers and sellers and their professional advisers depending on individual circumstances, says the ODPM.
Will there be enough home inspectors available to do the job?
It is estimated about 7,500 home inspectors will be needed. More than 8,000 chartered surveyors and other property professionals have expressed an interest in qualifying.
What about new homes?
A condition report will not be needed for the first sale of a new home, provided it is being sold with an NHBC, Zurich or similar warranty. However, it is likely a report will be required for any resale, even if it takes place within the warranty period.
The changes will not prevent gazumping, why not just ban it?
The ODPM says a ban would risk stopping legitimate activity. For example, a seller might want to accept another offer because the buyer is deliberately dragging his feet. However, if buyers are gazumped, they shouldn't have incurred heavy wasted costs as happens at present.
Why not adopt the Scottish system, where an offer is binding once accepted?
The ODPM says it doubts that the Scottish arrangements would work as well in more active housing markets. The up-front costs to prospective buyers mean more failed bids would result in more wasted expense for unsuccessful buyers.
(source This Is Money May 2006)