With the Government focusing on a shake-up of the house-buying and selling process in England and Wales, those involved have looked to other European countries to see if their systems work better. If the process is so different abroad, is there anything we can learn to help improve our own system?
The home-buying process varies considerably from country to country. The involvement of parties such as solicitors and estate agents, the process for contracts and the costs incurred by buyers and sellers might all differ and impact on the number of sales that fall through and on the time taken to complete a purchase.
Simply by looking at the time taken from offer to completion of a sale we can see that some countries clearly have a more efficient process. In 1997 when the Government review process began, research conducted by the Department of Transport, Local Government and the Regions (DTLR) showed the process takes around 65% longer in England and Wales ‘ a staggering 10 to 12 weeks ‘ compared to the seven weeks it takes in the surveyed countries. In some cases in the Netherlands it only took four weeks to complete.
To agree the terms of contract alone takes six to eight weeks in England and Wales, whereas no other country studied took longer than four weeks. This means we have the slowest house sale and purchase process in Europe.
The delay between offer and exchange of contracts and the amount of sales that fall through at this time is one of the key issues the Government wants to address within its review for a faster and more efficient system.
A major difference in process seems to be the use of standardised contracts abroad. These are prepared when the property is put on the market and in some cases they have conditions attached, such as being subject to the buyer getting a sufficient mortgage. Additionally the buyer may be required to pay a deposit of between 5%-10% of the purchase price, which they would lose if they withdrew from the purchase for any reason other than those in the conditions of the contract.
A cooling-off period is also common. This gives the buyer time to consider the contract with only a 0.25% penalty to pay if they withdraw during this time. By demanding commitment at an early stage, the sale is less likely to fall through.
Daniel Deleeuw, marketing director of Legal & General’s subsidiary in Holland, says: ‘By requiring buyers and sellers to sign a preliminary conditional contract, both parties show a commitment to the sale or purchase and are therefore less likely to withdraw for any reason other than those outlined in the contract.’
Looking even further afield, research conducted by the DTLR into the process in New South Wales, Australia, shows the contract and penalties attached are thought to have contributed to a substantial reduction in gazumping and the time taken to complete the transaction. However, they have learnt that the contract must be mandatory in order to work effectively. In the past, the contract at this stage was seen as good practice, but if not everyone buys into this it will not help with the overall process.
Another area that differs in some countries compared with England and Wales is that the legal ruling is ‘seller beware’ rather than ‘buyer beware.’ For example, in Denmark the seller is liable for any defects not disclosed on the property ‘ although they are now able to protect themselves against this. In England it is down to the buyer to find out about anything affecting the property before they commit to the purchase.
Whether this is fair or appropriate is debatable, but caveat emptor is a fundamental principle of UK law we should be wary of changing. We all accept that when we purchase a car through a personal sale that we need to make any checks required to ensure the car is fit for purpose. We would not rely on the seller to tell us about any defects to the car and they might not be sufficiently knowledgeable to know if any-thing was about to go wrong. So is it fair to expect the seller to be responsible for providing information on the property?
In Denmark the system has now changed so that the seller must provide a report on the condition of the home before putting their house on the market. They are then absolved from responsibility for any defects to the property not picked up by the surveyor. As well as in Denmark, the need for a survey as part of the pre-sales information is also required in parts of the US.
The DTLR conducted in-depth research into the home-buying and selling process in Denmark, as they see this country as having greatest relevance to the reforms they are proposing for the UK.
The Home Condition Report is one of the most contentious issues included within the British Government’s proposals for home-buying reform.
The Danish scheme now uses State-approved surveyors for carrying out the report, for which the seller pays between £300 and £500 ‘ a cost the seller does not pay for in England at the moment. The regulation around the surveyor used is thought to have reduced the initial concerns of the buyer over the independence of the survey. Our own research has shown some form of certification or guarantee of the contents of the Home Condition Report will be needed for UK buyers to trust it.
The involvement of estate agents in European countries varies from simply acting for the seller to carrying out the total transaction. In Denmark the agent is required to prepare a pre-sales pack ‘ including the survey ‘ and to check all the information included.
The Swedish estate agent, however, must go further and carry out the full transaction, which includes taking the role usually attributed to a solicitor. Who pays for the estate agents services also differs between countries. In most countries the seller bears the cost of the agent’s commission charges, as we are familiar with in England, however in France the buyer will often cover all costs.
Costs for buying and selling are very different throughout Europe. In England we have the lowest costs out of those reviewed by the DTLR in their surveys. In Portugal costs are around 8.5% greater and in Denmark they are 3% higher than England.
So how do England and Wales compare ‘ do we need the comp-rehensive changes proposed by the Government?
The process of buying and selling in England is unquestionably slower, but it is cheaper than in other European countries. Most would agree the process needs to be more efficient than it currently is, and much has already been done to improve the process for all involved. Notwithstanding the Government’s proposals for the Seller’s Pack, the industry has made huge strides to improve the slightly antiquated process.
Technology is now playing a big part in improving the process in England and Wales. Many brokers and lenders are now providing mortgage approval in principles (AIPs), so that buyers can look for a property knowing that they can get the loan they need. Many of these AIPs are now available in a matter of minutes online.
Developments planned by the Land Registry and Lord Chancellor’s Department in e-conveyancing should make a real difference to the complications and frustrations often encountered with a long chain.
If everything goes to plan, all parties involved in the sale and purchase will need to have access to the online conveyancing. It will be easier for estate agents and solicitors to see who in the chain is holding the process up and when an exchange date is likely.
Transfer of funds will also be done electronically and simultaneously to all solicitors in the chain, again saving time and confusion. In addition, the work on the National Land Information Service will improve access to data.
The use of technology has gone further than just purchasing the home. Many companies now offer online protection, so the adviser can complete a client’s mortgage and protection needs all online to help ensure nothing holds up completion.
The UK Government has rightly learned a lot from the differing processes in Europe. However, we must not forget how much the industry has done recently to improve the house-buying process in England and Wales.
Great care is now needed to ensure that the proposed Seller’s Pack meets its aim of improving the process while not affecting the housing market in a negative way by introducing new delays and costs.
Stephen Smith is director housing marketing at Legal & General
The house-buying process in Denmark
• The seller is responsible for providing a pre-sales pack including Land Registry information, local authority searches, energy performance report and a house condition report for houses only.
• A State-approved surveyor conducts the survey. A standard statutory form is supplied by the Government.
• Estate agent duties are designed to raise standards. They must inspect all relevant information and prepare the pre-sale pack.
• Estate agents have online access to the local Land Registrar.
• Additional costs are mostly borne by the seller.
• The system ˜reduces the window of uncertainty between an acceptable offer and contracts being exchanged.’