David Borrowman, Managing Partner of the Caesar and Howie Group has kickstarted action to have Home Reports legislation amended.  This is the letter he has written to every MSP in Scotland.

Please read all of this.

Many of you may wish to hear no further from a lawyer on Home Reports. However I believe in the interests of all of the Scottish people each MSP has a duty to read all of this communication.

I have been involved with property sales and conveyancing most of my working life. I have been in charge of the Caesar and Howie property department for the last 15 years. We sell several hundred properties annually. Our sales dropped by over 30% last year. However the number of properties we actually put on the market was not significantly affected by the credit crunch – only selling them was. Our listings (that is a client placing a property on the market for sale) from January to November 2008 only dropped 6% from the 2007 levels, and 2007 was a very busy property sales year. Listings of property held up very well throughout the first 11 months of the “credit crunch” year of 2008. Clients were still keen to sell and many were still selling although it was taking longer and lower prices had to be accepted to achieve a sale.

Then on 1st December Home Reports became compulsory – and our enquiries to sell properties and listings absolutely collapsed. They collapsed in a completely unprecedented fashion and by a magnitude I have never remotely experienced in my working lifetime. In the two months since Home Reports became compulsory our listings have dropped by a truly extraordinary 80 % from our average pre legislation levels. I read in the Scotsman of 7th February a statement from a “government spokesman” to the effect that “it is not possible to assess the impact of the introduction of the Home Report at what is traditionally the quietest time of the housing market” With the greatest respect that statement is wholly untrue. First January is not a quiet time for listings of property – it is often very busy. Second, I should advise that our listings in December 2008 represent 27% of our listings in December 2007, and our listings in January 2009 represent 23 % of our listings in January 2008. These figures show that what has happened to the market now is to do with Home Reports – and not to do with the recession or seasonal variations of listings. I repeat prior to 1st of December we were listing in 2008 94% of the listings of 2007 – the dramatic collapse only happened from the 1st December.

Our firm is not alone – this is the picture across Scotland. The reason is perfectly straightforward – sellers hate Home Reports and hate having to pay for them – and in many cases just cannot pay for them. On the very fist day of the legislation alone we had two potential sales clients tell us they would rather not sell than pay for a Home Report – one of them slamming down the phone in anger at us – as if this cost imposition was our entire fault. .

The unfortunate truth is that the Government and MS P’s have listened to “consumer” advocates who indeed are very persuasive. Regrettably those same parties to whom you listened simply do not understand how this market works and the motivation of people in it. I say that with the greatest of respect to parties who felt that they were giving good advice but I am afraid failed to appreciate how this proposed Home Reports system cut across normal behaviour patterns. By so doing the system is failing and will always fail.

Here is the truth of it. In my experience I believe about 65 % of people in the house sales market are (or were) what I would call “aspirational” sellers. They would quite like to move to better accommodation for various reasons but if pressed they would agree the move was probably not absolutely critical. They could “get by” in their existing accommodation if necessary. This group is by far the biggest in the market.

The next biggest group possibly about 25% or so of sellers I shall call “vulnerable sellers” because that is what they are. This group comprises separating couples, some married some not, and parties in some form of financial difficulty. These two subgroups, if I may call them that, frequently overlap. Separating couples are often desperately short of money, many are in substantial debt, and worse than all of that are often arguing bitterly with each other over finance and “who pays what”. Often it is difficult to get them to agree on anything. Fortunately most family lawyers nowadays work sensibly with each other seeking to achieve fair and reasonable settlements. For separating or divorcing clients the sale of the house is usually the absolute key for them to start making their way to a new and hopefully happier life outwith that partnership. Sale of the house is generally the start of the end of their misery. It is a common occurrence for solicitors to pay off these parties’ debts out of a house sale carried out by one of the parties’ solicitors. Usually this is done all in terms of an agreement worked out under the guidance of solicitors for each of the parties. Other parties in this group are just unfortunate people whose financial position has worsened since they bought the property, not just by reason of separation. Again the sale of their property is a key to the end of their misery. It is common also for solicitors to hold off creditors pending sale and to pay off all the clients’ debts on sale completion.

A small group on the market – maybe 5% or so, I will call the “safe and secure sellers”. This group comprises people who are moving jobs geographically or are older sellers trading down. I call this group safe and secure because they usually are. Some are moving to better paid jobs sometimes with moving costs paid and older sellers trading down usually have substantial equity in their houses. This group is not vulnerable in my view and will not be much affected by Home Reports.

There is a final group comprising buy to let sellers, lenders selling after repossession and this might account for around the final 5%. For ease of reference I will call them “others”. I accept of course my figures are anecdotal and not scientific since I did not think I would ever have to write a letter like this – but I do believe from my experience that this breakdown of sellers into types is reasonably accurate. Certainly our experienced property staff members agree with it.

All of these groups under the old system could get into the market very cheaply indeed and also very quickly indeed. Many agents charge nominal fees for “listing” or indeed do not charge at all. Also most agents can have the property presented to the market very quickly – we promised our clients to have the property on the market in 48 hours. These two features of the residential house market – cheap entry to the market and quick entry to it – have been utterly destroyed by the Home Reports legislation. Home Reports cost a lot of money and they take time to be put together. Consequently it is now expensive to join this market and it takes far longer.

Let me explain to you how the new arrangements affect the various selling groups identified above. The “aspirational” sellers, the biggest group, have left the market in droves. The argument that the price of Home Reports would not put sellers off because 90% of sellers are also buyers was always nonsense and that is now being proved. Again the parties pushing this legislation never understood the process. What used to happen was a property was quickly and cheaply put on the market. The seller would quickly gain market intelligence about his or her property and might even receive an offer. Only at that point would sellers commit to purchasing and commit to the cost of a survey with regard to their purchase. Consequently by the time that that party committed to the cost of a survey there was little speculation involved – this was all part of the moving process. That party was therefore generally at that point quite content to pay for the survey as by that stage they had realistic knowledge concerning what funds would be released to them on their sale and they had good knowledge and maybe even certainty that their sale would go through.

Now however the party is being asked to pay more for that survey (although it is now on his or her own house) and to pay for it even before their own property goes on the market. This means parties have to make this payment when the whole idea of a move remains an aspiration only. The mindset of the “aspirational” mover is completely different at that stage of the process. Many are completely unwilling to spend many hundreds of pounds to see whether their aspiration to sell could possibly become a reality. The listing figures I mention above simply prove the commonsense of this issue. Aspirational sellers are quite happy to seek to sell even in a poor market when it does not cost anything significant to test the market. Since the very day a several hundred pounds (and even more) “entry fee” was imposed by our Government – they have said resoundingly “no thanks – we’ll stay put”.

The resentment of sellers is palpable, it is expressed to us, and our figures show what a diminution of the market this has caused. There is no doubt whatsoever that the Home Reports legislation is the cause of this market collapse – our sales enquiries collapsed on the 1st of December. The collapse was immediate – it happened on that day – and it is continuing into February. Aspirational sellers have decided it is not worth testing the market at the price the Government in its wisdom has set for this.

Turning now to the “vulnerable sellers” – well you have delivered an absolute body blow to them with this legislation. They cannot market without finding several hundreds of pounds or more which most of them do not have. Many of this group have real credit difficulties and have no hope of getting credit. Perversely many will have enough equity to get them out of difficulty if they could market their property cheaply but now they cannot. I would like some of your number who voted through this legislation, and particularly Mr Alex Neil to explain to me how we can market a property (without breaking the law) where the seller has no money and no chance of credit. I would like an answer please because this is a real problem for potential clients of our firm.

I am so concerned about this vulnerable group of people, hundreds upon hundreds of whom we have in the past been able to help, that I am writing to the Scottish Legal Aid Board to see if they will grant legal aid for Home Reports. But whatever reply I receive it is a fact that this legislation enacted by the Scottish Parliament will badly hurt this group. So far as I can see increased repossessions are bound to follow. Further, misery and pain for many many people will be worsened by making separations and major debt problems much more protracted and much more difficult to resolve. If the Scottish Legal Aid Board do grant legal aid for Home Reports (and other solicitors have made the same request) then this leglislation will have achieved a truly extraordinary outcome – a delayed and more difficult sales process achievable only at considerable cost to the public purse – when there was no such cost before.

The last two groups in the market – the “safe and secure sellers” and “others” I do not think will be affected in any way by this legislation. However these groups are by far the smallest.

If I might lapse into the colloquial again, a very difficult property market has had a giant bomb dropped on it on the 1st December. Estate agents are now closing all around us – and I have heard now that several local law firms are also closing. Perhaps you are not much interested in the employment prospects of solicitors or estate agents – but the fact is things will not end there. Most purchases of major household items such as carpets, new kitchens, large furniture and so on are purchased on the back of a house move with the seller using equity released from the sale to make these purchases. I was interested to hear a spokesman for MFI commenting that 90% of that company’s kitchen installations followed a house move and when the English residential market collapsed it took MFI with it.

This legislation is directly responsible for a significant diminution of the house market. Huge redundancies in many businesses all over Scotland will inevitably follow because so much spending flows from house sales. I find it difficult to believe that any Government could ever introduce such a disastrous measure at any time – let alone when the country is facing its worst economic crises for at least seventy years and when the house market so obviously needs a stimulus. We have a very difficult house market where sales are hard to achieve. Our Government then makes it extremely expensive to enter this market. Clearly logic and commonsense must dictate what is going to happen – people simply do not enter the market. For government spokesmen to claim now that this will not happen or is not happening is the height of absurdity. The politics of the absurd can be amusing but not when so much is at stake for so many ordinary people.

And what has been the “gain” if any from Home Reports? I find it difficult to discern any at all. Probably 90% of the information in them was passed over to the relevant parties in the previous process as required. Multiple surveys were frankly a myth but in any event have not happened anywhere for the last 3 years at least. Perversely of course multiple surveys may now return if purchasers’ lenders do not accept the Home Report. I spoke to a surveyor last week and asked him to compare the new Home Reports with the Scheme 1 and 2 surveys. He said at best a Home Report was just like the old Scheme 1 plus about 10% more information.

Consequently all this pain, suffering and unemployment across the country is having to be endured for a report giving a modest amount of extra information at best.
On any reasonable and unbiased cost benefit analysis Home Reports are simply a disaster.

I suppose everyone makes mistakes – however there can be no excuses for allowing this phenomenally expensive mistake to continue. There is a way out. That would be to modify the legislation whereby Home Reports became non – compulsory, with the penalty being removed for a seller not providing one. That leaves the format of the report in place and should at any time Home Reports prove valuable for sellers I do not doubt that those who can afford them will start commissioning them. The Energy Performance Certificate which is subject to different legislation, need only be delivered at sale and clients therefore need not purchase one before marketing. Consequently the cost of that would be treated as a conveyancing outlay payable as the transaction proceeds – it would not then act as a disincentive to marketing. If this approach were adopted the fundamental driver to this market - cheap and quick entry for all – will not have been compromised.

I salute those MSP’s who opposed this legislation and those who at least argued against it within their party. I can only hope that some of you who are responsible for this disaster can at least show an independence of thought and take steps quickly to have this error put right. I received a communication from the Law Society last week to the effect that Mr Maxwell had indicated that the Home Reports policy was not likely to be reviewed before the end of this year. If that is indeed the case a policy which till now has simply been a misguided mistake – will have moved on to become one of wilful disregard for the welfare of Scots and Scottish families, all trying to earn a living in a faltering economy.

Action must be quick however because frankly the damage being done is so severe that many will lose their jobs in the next weeks and months. I sincerely hope that some of you have the courage and commonsense to act on this issue. There is a real emergency now. On the other hand were the compulsory nature of Home Reports to be removed very quickly – in time for the UK Governments loan guarantee scheme which we are told will come into play in April, this difficult market would in my view receive a very major and immediate boost. But it cannot happen soon enough.

Thank you for reading this.

Yours faithfully

David Borrowman.
Managing Partner
The Caesar and Howie Law Group
www.caesar-howie.co.uk