With only a few exceptions, a Home Report is required by law in Scotland if you are planning to sell your house. As the seller or selling agent, it is your responsibility to make a Home Report available to prospective buyers within nine days of requesting it. Note that a Home Report can only be produced by a Chartered Surveyor.
Newly built homes and a house bought by a private individual before going on the market are two of the limited exceptions when a Home Report may not be required. Please also be mindful that in this article I am wholly referring to the Scottish property market, for there are different rules and regulations in England & Wales.
Background to The Home Report
Home Reports have been a legal requirement in Scotland since 1 December 2008, following the introduction of the Housing (Scotland) Act 2006 and associated regulations. As a professional Chartered Surveyor, over the years I’ve come across various opinions about the value or otherwise of the Home Report.
The Home Report is far more than simply a legal necessity. It can be an invaluable guide to the buyer and seller alike. Commissioned by the seller, it provides prospective buyers with detailed professional information about the condition and value of the property right at the start of the transaction. It also gives sellers a realistic expectation of the condition and value of their property and allows buyers to make an informed decision before putting in an offer – and with an idea of what their offer should be.
It’s this latter aspect around the question of valuation that in my opinion has created the most debate around the Home Report. However, it should be remembered that before its introduction, prospective buyers had the unwelcome inconvenience and cost of paying for multiple surveys and valuations. Undoubtedly, in this regard, the Home Report has simplified the process.
Let’s remind ourselves of the three parts of the Home Report that are legally required in Scotland.
The single survey provides a detailed report about the condition and value of a home before it’s marketed for sale. The single survey also includes an accessibility audit of every home for sale in Scotland, which is particularly helpful to families with young children, older buyers, and people with a disability.
Keep in mind that though your flat or property may have a fantastic view – perhaps of a famous landmark or across a stretch of water or towards the hills – this (rightly or wrongly) is not factored into the Home Report. However, it will often be referenced within the marketing information compiled for the property sale.
The energy report – including the Energy Performance Certificate (EPC) provides details of the home’s energy efficiency rating and its environmental impact in terms of carbon dioxide emissions. The energy report – with its A-G rating – will also contain recommendations on how a home’s energy efficiency can be improved, allowing you as the buyer of a property to make greener choices and potentially save on energy costs.
Investing in energy-saving measures
At a time of the ongoing energy crisis and a greater awareness of the need to reduce our carbon footprint, as the seller you may be tempted to undertake some energy-saving measures in the hope of improving your EPC report within the Home Report. Certainly, such measures may improve your rating and reduce your heating bills. However, I’d strongly suggest doing a cost v benefit analysis before undertaking a raft of energy-saving measures, for in the Home Report process the surveyor is only focused on your EPC.
Completed by the seller, this questionnaire contains information for home buyers such as council tax band, parking facilities, factoring arrangements and any local authority notices. The property questionnaire will help reduce the risk of delay and difficulties in conveyancing by asking the seller to provide information on any alterations to the property early in the process, allowing more time for the necessary documentation to be prepared.
It is the responsibility of the seller or the seller’s agent to commission the documents needed for the Home Report. As I said at the outset of this article, legally, a copy of these must be provided within nine working days following a request from a prospective buyer or buyer’s agent. Where a local trading standards officer decides that a seller or sellers’ agent may be in breach of their duties to provide or to possess the Home Report documents to a potential purchaser, a penalty charge notice of five hundred pounds may be issued.
Documents in the home report should be no more than 12 weeks old when the property is placed on the market. The legislation does not impose a set shelf life or validity period for any of the Home Report documents. Decisions as to whether any aspects of the home report need to be updated or ‘refreshed’ will depend on the individual circumstances and are for sellers, buyers and their professional advisers to make.
Refreshing your Home Report
Take note that there is no official ‘expiry date’ of the Home Report in Scotland once the property is on the market. However, if your property is for sale for a long period of time, many sellers opt to have a ‘refresh’ of the Home Report carried out. This is important because potential buyers seek the reassurance that the information in all three of the legally required parts of the document is up to date, accurate, and reflects a true likeness of what is on offer.
Furthermore, if your property has been on the market for a longer than average period, a potential buyer – as opposed to the seller – may request that the survey be refreshed. In this instance, it is up to the buyer and seller to agree on who pays for the refresh survey to be carried out. The cost of the refresh is normally not the full amount of a Home Report and the charge can be determined by the surveyor or Home Report company undertaking this service.
It is also possible that the property for sale can be taken off the market for up to 4 weeks, and then put back on the market without having to have a new Home Report carried out.
Let’s now turn our attention to the issue of mortgage valuation.
Do I need a mortgage valuation?
If there’s one contentious aspect of the Home Report, it’s undoubtedly the valuation. Firstly, within the Home Report documentation itself, there is no legal requirement for a valuation. You could argue that the valuation is of most benefit to the lender, for it’s this calculation that gives the lender the reassurance that a desired property offers a fair market value.
What is a market valuation survey?
A mortgage valuation survey is a brief report carried out by a qualified surveyor to inspect the property you’re looking to buy. It confirms the value of the property a buyer may wish to purchase. Fundamentally, the bank wants to ensure that if they need to repossess the property, they can sell it again quickly on the open market and be able to clear their mortgage charge.
The valuation is specific to the property and gives the lender confirmation of the property’s current value. The report will also consider the recently sold prices of similar properties in the same neighbourhood and note any defects which may affect the property’s value. For example, as the lender wants to minimise its exposure to financial risk, the lender will want to know of any structural issues affecting the property.
Notably, the valuation is commissioned by the lender and paid for by you. However, you may not ever see a copy of the report because the RICS surveyor undertakes the valuation on behalf of the lender.
Cost and detail in the valuation report
The mortgage valuation is not an in-depth report and depending on the value and size of the property will typically cost between £150 and £1500 to produce. Within the 2-3 page report, the mortgage lender is usually seeking clarification on two key points:
Is the house structurally sound? A mortgage valuation survey will check for obvious signs of structural damage, dampness, problems with the roof, problems with wiring, etc. However, floor coverings won’t be lifted or readings taken. If any potential issues are obvious, the surveyor may recommend that a more detailed report (a specialist damp and timber report for example) be obtained by the mortgage company before mortgage approval.
Is the house worth the price you are paying for it? All lenders will request a valuation as part of their mortgage application process. But is the valuation fair?
As a RICS accredited Chartered Surveyor, I take great pride and care in assessing the properties I assess and value. Yet it’s hard to ignore that one of the current issues with the Home Report system is that many valuations for the lender appear to be below the price for which the property finally sells.
To an extent, this may reflect the lender’s wish to be cautious – ensuring its ‘risk’ in lending will be covered in the event of a subsequent downward fall (devaluation) in the property market. However, valuations well below the actual selling price – for example in property areas of high demand and which may serve to stimulate greater interest in the property – only serve to frustrate buyers.
This is particularly acute for many first-time buyers and others in the market who may have limited financial reserves to purchase a property, beyond the amount the bank agrees to lend (based on their mortgage valuation). In stark terms, this means if a property valuation comes in at £150,000 but similar properties in the area are selling for £200,000 – the buyer may need to find another £50,000! Clearly, this scenario effectively prevents many potential buyers from purchasing their desired property.
Of course, as the seller, you may be very happy that your property valued at £150,000 subsequently sells for £200,000. However, at a time of volatility in the property market, it’s important for lenders to rethink their approach. Could there be greater flexibility in their lending criteria?
Perhaps it’s unsurprising – anecdotally at least – of suggestions that the valuation is completely removed from the Home Report system! Effectively, in this scenario, it would mean lenders met the amount that the prospective buyer bid for the property. Such an approach would pass the risk assessment criteria of lenders, but it’s a suggestion that underlines current dissatisfaction in some quarters with the current system.
Do I need to accept the mortgage valuation?
This is another sticky point. Legally, a Home Report doesn’t need a valuation but it’s invariably a demand from the mortgage lender. From the buyer’s perspective, there may be a wish to challenge the mortgage valuation placed on a property – but clearly, it’s the lender who ultimately holds the key to unlock the door (so to speak). Potentially, you could request another valuation is undertaken, though often the lender will only accept a report conducted by surveyors on their panel.
In summary, since its introduction in 2008 the Home Report has helped to create a system of house buying and selling in Scotland that is fairer and arguably more transparent. Hopefully, the above has also dispelled some myths about the required documentation.
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