Estate agents will be pack leaders

The delay in the introduction of HIPs means providers\' pricing models have been disrupted but estate agents that offer them free are still likely to dominate the market, says Frank Eve

We were all taken by surprise when, as a result of the Royal Institute of Chartered Surveyors’ application for a judicial review, the government said it would delay implementing Home Information Packs until August 1 – and then they will only be for houses with four or more bedrooms.

We now know that HIPs will become a reality for a minority of house sales on August 1, but what of the plans that have already been put in place by the industry? It’s not only an embarrassment for the government but it also disrupts many of the business models HIP providers have been working on in terms of volumes for 2007. Some HIP providers have in-vested millions of pounds in their businesses and will now have to adjust their budgets to accommodate lower volumes and an uncertain future.

HIP providers such as The Partnership are putting a brave face on it.

“We understand the government’s concerns about the distribution of inspectors around the country and believe that this is a prudent and sensible step,” says Peter Ambrose, director of The Partnership. “Like most people in the property industry, we have always believed that a phased approach to the introduction of HIPs is essential. While we understand there are concerns about the late notice of the announcement, we continue to work with agents to help prepare for the launch of HIPs on August 1.”

What is unsure is how this U-turn will affect HIP pricing and how providers’ business models will be able to adjust to a phased approach. The pricing of HIPs will be key to survival in what has become a financial minefield. Also, with some providers suggesting that paying more than 275 for a HIP is an extravagance, the promised consolidation of the market may come sooner than expected.

It seems that some have arrived at this price by assuming that an Energy Performance Certificate will cost about 70. While this may become realistic in the future, firms are currently struggling to attract inspectors at this cost. Working with such slim margins leaves little room to accommodate changes in pricing models.

Other HIP providers suggest a retail price of about 475 for a personal search-based offering. This is a little more realistic. Ambrose believes this is a sustainable figure and expects to see those firms charging it surviving over the coming years while others face difficulties.

Hamptons International is the first big estate agency to announce a strategy of offering clients HIPs free as part of instructions. This is an important initiative. Hamptons says that if a seller withdraws their property from sale within a year they may be liable to repay the cost of the HIP, which interestingly it also estimates to be about 500. Whether it will be able to continue to subsidise this cost remains to be seen.

So which pundits have correctly predicted the outcome of this change in procedure for home buyers? My money is still on estate agents to dominate the market, especially if more follow Hamptons’ lead and offer the service free to consumers by subsidising the cost.