Scottish Government

SCOTTISH EXECUTIVE CENTRAL RESEARCH UNIT

Development Department Research ProgrammeResearch Findings No.142

The House Buying and Selling Process in Scotland

DTZ Pieda Consulting
NFO System Three

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Main Findings

• 46% of non RTB purchasers did not get any advice on the house buying process. While this figure decreases to 30% for first time buyers, it is still a considerable percentage. RTB purchasers were far more likely to obtain advice.
• Solicitors were the main source of advice, particularly on issues such as valuations/surveys, how to go about buying and how much to bid.
• People often only had contact with one or two of the professionals involved in the transaction. In particular, they tended to instruct valuations/surveys via a third party.
• There is a great deal of written information available. However, people often reported they felt overwhelmed by the volume of information, and noted that a clear, concise guide to what they had to do was not available.
• 76% of people were successful with the first offer they made for a property but just 67% of people had had just one valuation/survey conducted. Some 12% of all valuations/surveys conducted are not followed by an offer on the property.
• While most people were satisfied with the information they received about their home, 27% discovered unexpected repairs that were needed for the property.
• Two thirds of valuations/surveys conducted are Scheme 1 Mortgage Valuation Reports.
• Respondents did not always display a good understanding of the role and content of the different types of valuation and survey reports available.
• The total average cost of house buying, excluding Stamp Duty, was 1337. Total valuation/survey costs were an average of 299, with people spending an average of 166 on the valuation/survey of the property they purchased.

Introduction

The aims of this study included:

• to examine how well the information needs of house purchasers are met by the current house purchase process;
• to examine how perceptions of survey and other transactional costs influence purchasing behaviour;
• to quantify delays and transaction costs associated with house buying and selling in Scotland.

Information and advice

There is a great deal of written information on the house buying process. However, the sheer volume of different information resources, and the fact that few publications seem to offer a concise, clear guide that covers each of the components properly, mean that buyers often feel overwhelmed and find it difficult to distil the information they need.

People are generally satisfied with the support they receive from their advisors, the information they have available on the proposed purchase and on the condition of their new house. There was a general view that solicitors provide the widest range of information, as well as legal services. Buyers were slightly more wary of advice from other professionals, suspicious that the advice may be biased and the service less comprehensive.

Buyers appreciated that it was their responsibility to find out enough about the process, the market and the individual property to make the right decisions. They often regarded house buying as a huge learning curve. Most of the interviewees had spent some time before they started looking seriously, getting to know what types of properties were available, and what they could get for their money. Buyers often have to learn from their own search activity, with most viewing a number of properties before making an offer, and some needing to have more than one survey/valuation before making a successful purchase.

Surveys and valuations

Generally, buyers regarded the valuation/survey as a requirement for getting a mortgage. Beyond this, two aspects of the report were of interest to the buyer. First, buyers felt that the report would alert them to any fundamental problems with the property and provide information about any major repairs that need to be done immediately. And second, buyers were interested in the valuation, as this gives a guide on how much to bid for the property, as well as being an important factor in determining how much mortgage finance they will be able to secure.

The majority of the valuations/surveys instructed were Scheme 1 valuation reports - accounting for 66% of valuations/surveys on the property purchased (excluding those who could not remember the type of report). The most common reasons for selecting a particular type of report were for mortgage purposes (18%) and because it was the cheapest (16%).

The study suggests that buyers may not understand the content and role of the different types of valuation and surveys. In particular, there was a view that, because the Scheme 1 report meets lenders' requirements, it will provide a good indication of the condition of the property. People assumed that if a Scheme 1 valuation did not report anything wrong with the property, then there was nothing wrong with it.

The Scheme 2 survey provides more detailed information on house condition. However, the study identified some areas that may be of interest to the Task Force and to buyers that were not covered. These include information on energy efficiency to assist in estimating heating bills; information on common parts to assess likely repairs and maintenance costs; detailed information on components that the surveyor cannot inspect visually/access; and information on the cost of remedial works and likely lifespan of items such as central heating systems.

Time

The study found that the early stages of house buying, while the buyer collects information about the market, can be protracted. However, this provided useful information on the way the local market operated and the type of property that could be obtained. During this period, around half of the house buyers changed their search criteria, mainly to increase the amount they were willing to pay for a property and/or to look at properties in other areas.

The time taken once they started to search seriously until they had an offer accepted averaged at three months, but ranged from less than a week to more than six months. The time taken from offer to entry was around nine weeks, again with some variation. It was noted that the time taken to conclude missives has been extending, largely as a result of the greater number of items being included.

While the survey did not find significant problems with raising mortgage finance or repaying mortgages, the qualitative interviews did indicate that people can find the transfer of funds very stressful, as it happens at the last minute. There were also concerns about the potential future affordability of mortgages, when interest rates start to rise again.

Professionals regarded delays in house transactions as coming from two main sources. First, from sellers deliberately delaying the transaction to give themselves longer to find a new home. And second, delays caused when the buyer's mortgage finance was not in place.

Cost

The cost of house buying is not insignificant, averaging at 1337 (excluding Stamp Duty). There are wide variations between first time buyers and experienced buyers, and between the costs for people buying fixed price properties and those buying offers over properties. However, these differences are largely the result of house price differences between the groups, rather than a result of different core costs.

Valuation/survey costs are a small component of the overall cost of buying a house. This is particularly the case for the majority of buyers who had had only one valuation/survey. However, the cost does rise substantially when a series of valuations/surveys are required. For buyers of properties costing over 60,000, Stamp Duty has a substantial impact on purchase costs.

Sellers

Co-ordinating the buying and selling process, so that sale and entry date are the same, was an important issue. However, there was an assumption that, where sale and entry dates were different, both transactions would proceed, with temporary accommodation or bridging finance being used to cover any gaps.

Single/Seller's Surveys

The research found that buyers were generally in favour of the idea that a single survey/valuation could be made available to all prospective purchasers. Their main reasons for supporting the idea, and in many cases suggesting it before it was mentioned by the researcher, were to cut down on the cost of surveys that do not lead to purchase and to have early access to a valuation. The interviews, not surprisingly, indicated that people would prefer to spend 50 for a survey that did not lead to successful purchase, than spend 150 on their own Scheme 1 report. However, it was not clear that buyers would be generally content to pay the full cost of a single/seller's survey report based on a Scheme 2 report.

Sellers' views on the single/seller's survey were mixed - while tentatively supportive, they had concerns about whether the single valuation would constrain offers on the property, as all potential buyers would have the same valuation.

Professionals echoed the points made by buyers and sellers, but were more concerned about issues of conflicts of interest - whether a single report could meet the very different needs of buyer and seller, and whether the buyer would have legal rights if the surveyor had been negligent.

Right to Buy

The experience of RTB purchasers was somewhat different. They were far more likely than non RTB purchasers to obtain advice about the buying process: information requirements centred round the level of discount, the sale price of their home and the amount of mortgage finance they would have access to. However, only a third of RTB flat owners obtained advice on the cost of upkeep and repair of common areas.

Most had good knowledge of their property having been a tenant for some time. Consequently, the vast majority reported that the cost of repairs and maintenance was about the same or less than expected. Around half the RTB purchasers had also borrowed additional money for repairs and improvement, generally as part of their mortgage.

About the Study

The research used a combination of methods.

A literature review was conducted to ensure the study built from previous research.

Surveys were conducted with people who had purchased their new property a year previously (500), people who had purchased no more than three months previously (92) and people who had purchased under the RTB (312).

Depth telephone interviews (40) were held with selected respondents to examine some issues, such as problems selling properties and unexpected repairs, in more detail.

Focus groups (4 groups) were held with specific types of buyers/sellers, including people currently searching.

Interviews (26) were conducted with professionals involved in house buying and selling.