An Introduction to Home Information Packs

1 December 2007

With effect from 14th December 2007 the law will provide that, before a home is offered for sale, a Home Information Pack (HIP, also called a Home Sellers Pack)* must be prepared by or for the seller. HIPs will contain relevant information of interest to a buyer, including an optional Home Condition Report (an HCR) with a mandatory Energy Performance Certificate (EPC).

* current legislation now applies to all residential properties with certain exemptions

What are Home Information Packs?

It is widely recognised that the home buying and selling process does not operate in the best interests of consumers, that is homeowners, whether buyers or sellers. Indeed, Government research shows that 40% are dissatisfied with that process. Often fraught with delay, uncertainty and disappointment, the whole business can be wasteful and frustrating leading to much stress and, not unusually, needless acrimony between parties and their advisers. If you've been there before you will know the feeling and for first time buyers, not knowing what to expect, it can be a nightmare.

Of course, not everyone is similarly afflicted but as ever, when everything falls into place it usually means that things have been well prepared in advance with a view to avoiding delays and problems at the last minute.

It is believed that Home Information Packs will bring greater certainty to the whole process and speed up transactions.

What a HIP will Contain

A HIP will be a pack of information for the buyer, much of which was previously assembled by solicitors during the conveyancing process but only after an offer had been accepted. The new HIPs legislation means that this legal work will have to be commissioned by, or on behalf of, a seller before marketing can commence.

The HIP must contain certain "required" information including the terms of sale, evidence of title, leasehold information, an Energy Performance Certificate and local authority searches. A range of other information may be included which is classed as "authorised" which, for example, will be a mining search in areas of the country identified as being subject to existing or old mining activity.

Home Condition Reports are now an optional component of Home Information Packs.

All required and authorised information is regarded as of relevance to buyers and an aid to a simpler more effective selling process.

It is important to remember that sellers, potential buyers, the estate agent, surveyors, conveyancers and lenders will, in effect, share all this information and use it for their own purposes.

The Home Condition Report (HCR)

The HCR is an optional part of the HIP. This is a new type of surveying product prepared by a specifically qualified and licensed Home Inspector who must have professional negligence insurance. Although the seller commissions it, it is impartial and the Inspector owes a duty of care to the seller, the buyer and the lender: all of whom may rely on it. HCRs are designed to be wholly objective and clearly report on the observed condition of each element of the property, rating the condition of these elements either category 1, 2 or 3 according to its "seriousness". The reason for each rating is justified and the most serious summarised at the conclusion of the report. HCRs are likely to be made mandatory at a later date.

Energy Performance Certificates

Within the HIP a section is devoted to the energy efficiency of the property and a certificate provided in much the same way as white goods are now rated in the shops. This becomes increasingly important as our responsibilities to limit CO2 emissions in accordance with international treaties are observed and to take action to save energy, quite apart from controlling household costs.

Where to Purchase a HIP

The provision of HIPs is a new and developing service. In the normal event of an estate agent being instructed by the seller, it will most probably be the agent who will commission a HIP from their preferred supplier. However, Home.co.uk suggests that home sellers should consider purchasing a HIP independently so as to not be tied to any single selling agent. A conveyancer may also provide one, if appointed at an early stage. There will be many methods of buying a HIP, some very flexible solutions to meet sellers requirements and it will, of course, be possible for a seller to commission a HIP direct from a specialist pack provider.

Packs may be made available in paper form (bound document), electronically (e.g. pdf over the web) or on data storage media (CD, memory stick etc) to meet the needs of sellers and buyers.

The Cost

It is estimated that a Pack will cost between £300 and £500, depending on the provider and the size, value and complexity of the property. There is unlikely to be a 'one size fits all' cost and, again, methods of payment will vary. It is anticipated, for the most part, that the supplier or appointed agent will carry the cost to be settled when a property is sold in the same way as agent's commission and most professional fees are handled now. However it may well be more economical and more sensible for sellers to purchase their packs independently in advance.

Getting Value for Money

A HIP is designed to facilitate a sale, making selling simpler and buying better. The content must be reliable and whilst there will be no escaping the "nasties" such as reported serious energy inefficiency or defects in title unless these are remedied before bringing the property onto the market, it will be important to ensure that the HIP is value for money. Competition amongst the already large number of companies gearing up to provide HIPs will undoubtedly help ensure the consumer gets value for money.

In addition the trade associations such as the Association of Home Information Pack Providers and the Council of Property Search Organisations will have codes of practice to be observed by their members.

What If It's Wrong?

The homebuying reforms have their origin in protecting homeowners and improving the process of buying and selling. There will be a range of remedies and redress mechanisms in place to provided recompense to consumers in the event that the HIP, the way it is handled or any of its elements fall short of standards prescribed by providers exercising proper professional skills and due diligence.

Seller

The HIP will enable sellers "to get their house in order" in every respect and fully prepared for sale not just in a cosmetic sense but seeking to ensure that the sale will proceed smoothly once an offer is accepted. If one thinks about it in simple and perhaps more familiar terms it might be likened to the service history of a car, which is preparatory to ensuring a good sale and equally a reliable buy.

Buyer

The well-established principle of "let the buyer beware" will remain in place. But HIPs will allow a buyer to make better comparative judgements when viewing properties and to make a more informed offer whilst not excluding the opportunity to take proper advice on the good sense of buying. The buyer will be better prepared and will be enabled to secure in advance, for example, a 'mortgage offer in principle' and plan other relevant matters such as budget for improving energy efficiency of the home.

Estate Agents

HIPs will enable estate agents to set a more realistic price and terms of sale. Current selling practices will be adapted to include the handling of queries from both the seller and buyer as a consequence of the greater transparency of information up front. Estate agents may have the skills and knowledge to do this within their own organisations or may recommend other sources. Sellers and buyers will have to make judgements about this when commissioning services and ensure that advisers appointed by them find solutions and manage the deal on their behalf to meet their expectations.

Mortgage Lenders

Mortgage Lenders have been somewhat reticent to declare their views on what use they will make of a HIP. It is likely that as holders of deeds of the many properties on which they lend they will be much involved in the HIP preparatory process and that they will use the HCR as a tool to inform their lending criteria, including valuation requirement. Mortgage offers based on the contents of a HIP are likely to be obtainable from many lenders (especially those that have the new Automated Valuation Models for faster processing of mortgage offers), however some lenders may add the caveat that a Basic Valuation Survey must all be effected in the case of some property types.

Your Conveyancer

At present the conveyancer for both seller and buyer plays a major part in the assembly of much of the information which will appear in the HIP. Conveyancers will in future determine whether they believe that the content of a HIP presented to them may be relied upon, depending upon for example when it was prepared, what it includes and what action might need to be taken as a result of the information exposed. It is likely that the conveyancer will play a vital part in advising the seller or buyer on the good sense of concluding a transaction at a particular price and at an appropriate time.

Be Informed

As a seller and buyer armed with a HIP you will have more information at your fingertips than ever before. As a homeowner, you will be both empowered and challenged when you have this information in your own hands, which is currently exclusively handled by professionals in their own offices. Professionals will be equally challenged by this greater transparency and will undoubtedly be offering new services to meet our expectations. There will be choices and decisions to be made all round!

Consequences

Of course the introduction of HIPs will not all be plain sailing. It's quite revolutionary and everyone in the process will have to change the habits of a lifetime - buyers, sellers and their advisors. Homeowners are human after all. You can and do change your minds for one reason or another, but before planning to do anything there are very good reasons to be well prepared, if only to avoid being caught out at the last minute with all the attendant disappointment. HIPs will require greater commitment from sellers but this must be fair as they do stand to gain most from a property sale. Buyers will enjoy an unprecedented degree of transparency, considerable comfort when faced with probably the single biggest investment of their lifetime and one that many must live with.

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