The surveying industry has suffered as much as any other during the credit crunch, with a number of firms failing and others facing the prospect of compensation claims from lenders over alleged inflated house prices.
Times have also changed for brokers’ relationships with surveyors as concerns about fraud have led to lenders taking survey instructions under their direct control. And there is a lack of understanding among brokers and consumers regarding the benefits of private surveys.
As the market recovers should brokers have more control over instructions? And how can brokers sell more private surveys?
Mortgage Strategy, in association with Colleys, invited the finest minds in the mortgage market to tackle these issues.
WHAT ARE THE KEY AREAS WHERE BROKERS AND SURVEYORS CAN WORK TOGETHER?
Jack Saxton: The main opportunity for us is that the majority of surveys for a property are basic surveys whereas most customers, other than in the new-build market, want more material information. So we as surveyors can increase our income while also adding extra value by offering a wider range of products. With a mortgage market dominated by intermediaries, the opportunity to offer that wider range lies with brokers.
Fahim Antoniades: Brokers could get more value by selling comprehensive surveys but it’s human nature that some take the line of least resistance and are apathetic. The other aspect is that if a survey digs deep into the property and finds problems it could jeopardise the broker’s sale. Under the principles of Treating Customers Fairly brokers should not be trying to protect the sale by not offering a survey. They should do more to understand the different surveys and promote them.
Martin Reynolds: I would have thought that the best advice is to offer a comprehensive survey because even if the customer does lose the property, at least you have gained their trust by showing them all the pitfalls along the way and they will come back to you. You would like to think you’d get a lot of referrals for going the extra mile for clients.
Nigel Britton: Interestingly, research in Halifax’s retail division suggests there is a better chance of the sale proceeding to completion when a private survey is taken out. Using more comprehensive surveys means more completions.
HOW CAN TECHNOLOGY BE USED TO BOOST BROKER SALES OF PRIVATE SURVEYS?
Saxton: From a technology and point-of-sale perspective we need to get to the stage where valuations are just a click away for brokers in a similar way to conveyancing. Where we have engaged with branch-based advisers we have increased penetration from below 20% of sales to 32% in South Wales and the west of England and to an average of between 23% and 25% nationally.
Paul Chapman: There are different levels of sales between the direct and broker channels. The internet channel is the most popular with penetration of between 25% and 35% although the numbers are small so the figures are erratic.
Jonathan Cornell: That flies in the face of consumers being concerned about cost and is probably down to online customers having more knowledge.
Antoniades: Sourcing systems always show basic valuations but it would be helpful if they showed the price range on all the other surveys. I’m sure that would prompt brokers to consider recommending one and there would be more sales.
Andy Pratt: If you compare five years ago with now, fundamentally the information available to brokers hasn’t changed. What has happened is that for many firms the process of instructing the valuation has gone to the lender. We used to have a panel management agreement with Colleys and in that instance you’d get far more control and more information would be available to brokers. There would be more consistency when working with lenders but now brokers work with lots of lenders, all with slightly different processes and prices, so it is more complex.
Saxton: At this stage of the economic cycle it’s natural for lenders to move their surveying inhouse but as the market picks up we will be building those relationships again. Today, it looks like we’ve gone into our shell and are just protecting the bank’s assets with no serious products but that will change.
WHAT ARE THE BENEFITS OF USING PRIVATE SURVEYS?
Cornell: It’s important to educate brokers and buyers about the benefits of private surveys. The average person can save a lot of money through the issues a survey highlights.
Simon White: In 30 years of doing building surveys I can count on one hand the number of times a sale hasn’t proceeded because of it. A building survey is not there to condemn the sale but to give buyers peace of mind and a tool to negotiate a potential reduction in the asking price that’s the big selling point. It’s rare that a reduction in the purchase price greater than the survey fee is not achieved.
Andrew Montlake: The problem when describing a building survey to clients is its perceived value and the extra cost. The number one barrier to selling surveys is cost. Anything that can be done to reduce the price would help because it has become prohibitively expensive. Now that surveying is back in the hands of lenders they can put up valuation rates and fees.
Chapman: Not only can surveys lead to a reduction in the purchase price but if buyers don’t get it done they can end up paying an average of £1,800 extra post-completion for problems with the property they weren’t aware of. You can probably play with the fee but education is the key issue. It’s about myth busting, particularly for estate agents. Where front-line negotiators are concerned it might put their sale in jeopardy.
The British fascination with owning property is almost belied by the lack of checks we do when buying houses. It wouldn’t be the same in the car industry where there would be more checks on the condition of the vehicle and that financial commitment is no way as big.
Antoniades: The best value surveys are for more expensive houses but clients pay hundreds of pounds only to see a surveyor look around the property for five minutes. There is a problem with the perception of what a survey actually does.
SHOULD BROKERS HAVE MORE CONTROL OVER THE SURVEYING PROCESS?
Antoniades: I would like more control in facilitating valuations, which is something we used to have but has been taken away from us. Now we are left with a cumbersome process where the lender goes to the head office of a surveyor then to the local office and back to the broker. It leaves a two or three-day period when we’re out of the loop. If the surveyor is on the lender’s panel why can’t we contact them directly and get the report to the lender? There were certain fraud issues, but we can revisit it again.
Saxton: We think it’s part of the economic cycle to bring surveying inhouse as we want to protect our assets. We want to make sure we’ve inspected the property and it’s appropriate. For us to get back to facilitating those relationships again it comes down to trust and getting out of this cycle. What we have done is put a surveyor audit programme in place to protect our position against complaints for over-valuations. A skilled surveyor would say that it simply provides evidence that the job is being conducted appropriately.
If we can mirror that with key partners I think it takes us out of this environment of protecting the bank’s assets and we can rebuild relationships we used to have with brokers. The biggest issue is keeping productivity high and to do that we want to be outsourcing a minimum of 20% of our business. Once we have protected ourselves as a lender we can ask what customers want. That’s when intermediaries’ expertise is crucial in giving advice to customers, because we can’t offer that.
I still have some doubts about commission though. If the average proc fee is around £350 and we pay £25 per survey it won’t hit brokers’ radars if they’re spending two hours with a customer. I think we may need to look at paying commission and we’ve certainly been piloting it in the past few months.
Antoniades: Control over surveyors is not the issue, it is more about efficiency and speeding up the process.
Chapman: There could be a halfway house by offering brokers access to an online diary system where they book an appointment for the buyer and vendor. It avoids the process of passing through a call centre for a couple of days.
ARE CUSTOMERS CONFUSED BETWEEN A PRIVATE SURVEY AND A VALUATION REPORT?
White: Colleys hasn’t helped with its valuation form. If customers receive a detailed report telling them about the state of the ceilings, lofts and damp they will think they’ve had a survey. If it used an old valuation form that encouraged the surveyor to take a broad brush approach customers would be more likely to get a more comprehensive survey.
Britton: I don’t think the majority of our reports go into lots of detail. However, it’s fair to say we’ve looked at the length of some of our standard paragraphs in the reports and are going to reconsider how we write them.
Chapman: Our research shows that customers believe they are getting a survey when they are actually getting a standard valuation. We have to look at what blurred those lines and address it. A much reduced valuation report may be seen as a return to non-disclosure to customers, which is unlikely to happen. Once again, the priority must be to educate brokers so that everyone in the process understands what they are getting.
Reynolds: The key is educating not just brokers but consumers too. The average person only buys four or five houses in their lifetime. Do they understand what a normal valuation is? It is not properly explained through bank or estate agency literature. Once you can get clients to understand the housing transaction process it becomes easier to sell other products. If brokers can explain that there is no protection or redress on a standard valuation that will help.
Pratt: The forms have become more complicated and confusing. The valuation report can appear to be a private survey when it’s not. It would be helpful if there was no valuation fee and just a fee for a home buyer survey so it is clear what the purchaser is getting. Brokers could then go to clients and say that if they want to have a survey conducted they will have to pay for it. I think it would increase the possibility of upselling.
Saxton: We are now at a similar point with surveying to where we have been with other business-to-business propositions such as the broker offering.
We need better technology and selection of data for brokers to access different surveys and sell them. We need to engage with intermediaries to sell surveys to customers and to do that effectively we need an improved service proposition. When we engaged with our branch consultants they knew about the issues that stopped customers buying surveys and it helped improve our service. So we need to speak to intermediaries because they sell the majority of mortgages in this country.
Montlake: Getting a mortgage is an expensive process and it’s human nature to look at how to save costs. The broker fee is one area that is often sacrificed and a private survey is another. You can’t change lenders’ and solicitors’ fees so brokers fees and survey costs are the only things that can be dropped.
WHAT CAN BROKERS DO TO TACKLE VALUATION FRAUD?
Saxton: For something as simple as a vendor-gifted deposit, while it is the responsibility of the conveyancer, brokers are best placed to spot potential issues and should highlight them to lenders to ensure transparency around the sale. For the valuer it is important to spot when this is happening and if everything is legitimate. In essence it is the sale of a property for under its valuation price. It is the second-hand market’s version of the Council of Mortgage Lenders’ disclosure form for new-builds.
For instance, if the purchase price is £100,000 and the valuation is £100,000 but the seller has been waiting so long to sell he accepts £95,000 then he can gift a deposit. They can ask the solicitor to drop the purchase price by £5,000 to fund the buyer’s deposit. From a lending decision perspective it seems fine because the 95% LTV is matching the valuation price. But there is no deposit or contribution from the borrower, which should alert lenders. If you look at the different degrees of how much could be gifted then you could move straight into money laundering.
Reynolds: The broker market may have to come up with a solution to take to lenders to show they are capable of instructing surveyors again.
Pratt: Brokers wouldn’t want to get involved in instructing individual surveyors. They want more control to get things done faster but in a process that is still at arm’s length. It’s fine for surveys to be in the control of lenders.
Reynolds: But in some cases a broker would know that if the property is in a certain postcode it’s probably going to be a particular valuer.
Saxton: That could also play into collusion for fraud.
Pratt: When we were able to instruct valuations in the past we always talked about a process where brokers could audit valuers but that never happened. We went from 100 to zero by taking it away from brokers. An audit process would have to be in place so any broker involvement in the surveying process could be open and transparent. That maturity would need to be in place before anything did happen to highlight any potential loopholes that can be closed.
HOW DIFFICULT IS IT FOR SURVEYORS TO OBTAIN PROFESSIONAL INDEMNITY insurance AT THE MOMENT?
White: We got PI cover two years ago and had to get £10m from day one because we sell to the high value market. We got it fairly easily because neither I, nor any of my colleagues, had any claims against us and we were dealing with fairly low LTVs. But lower down the value chain it is far more difficult.
Saxton: In terms of over-valuation complaints more than 90% of them are pre-2009. Having spent lots of time investigating the complaints and assessing the damages versus legal costs we’ve changed all our processes and now have a dedicated team of lawyers to manage the process. When looking at the evidence from court cases and other claims, it seems some 50% of the damage has come from the underwriting. If there is a serious problem then the valuer is often the last man standing because the broker may have gone at this point in the cycle.
It is tough right now and a number of firms won’t be able to get PI but if we demonstrate a capacity to handle complaints now then it will help the industry the next time we are in this cycle.
White: Pre-2007 the biggest problem was underwriting and self-cert mortgages. Irresponsible lending was the main contributory factor and the surveyor is the insurance policy for lenders so that is where the claims are made. Half the time the surveyors would probably be right because we were in a rising market.
Some surveyors probably encouraged their surveyors to overvalue properties because they wanted more transactions. It’s my experience that surveyors were encouraged to value up within a 10% margin and when you couple that with irresponsible lending and a market that turns bad, then there will be a large number of claims.
Chapman: It would be dangerous to say we were at the peak of the PII cycle in terms of cost and difficulty in obtaining it. There will be a number of borrowers out there who are close to repossession. When there are repossessions lenders will look for redress and there are only a few places they can go and a surveyor is one.
There’s certainly no queue of insurers looking to offer PI at the moment. Obviously there are consequences whenever lenders make claims against surveyors but I’m not sure they take that into consideration.
Image: Top L-R: Simon White, director, London’s Surveyors; Paul Chapman, senior commercial manager, Colleys; Jonathan Cornell, industry consultant; Nigel Britton, managing surveyor Middle L-R: Jack Saxton, head of surveying and valuation services, Lloyds Banking Group; Martin Reynolds, director, Agent Tracker; Fahim Antoniades, group director; Andy Pratt, chief operating officer Bottom: Andrew Montlake, director, Coreco