When progressing through the process of buying a new home or investment property, the lender will carry out a thorough assessment of the property as security for the proposed mortgage. The purchase of doing this is to ensure there is adequate security for the lender.
Most new build properties are covered by a recognised building guarantee scheme which can be offered up to ten years from the date of the final build was signed off and the property offered for sale. However, if buying a property that is not offered with such a guarantee, buyers should seriously consider commissioning their own report to evaluate the condition of the property in a more detailed way.
The Royal Institute of Chartered Surveyors (RICS) has established three further services that can be undertaken by mortgage applicants – the Condition Report, the Homebuyer Report and the Building Survey. If a valuation or survey results in the identification of potential issues, further specialist reports may be required.
If you are deciding on a report, if the sale does not go through the costs of the reports undertaken are not refunded. Therefore, they are a sunk cost of buying a property. Since most of us are not able to comprehensively understand the complexities involved in properties, it is worth enlisting the help of an expert.
Undertaking a survey or valuation also adds an element of insurance in some cases. If a problem exists and is not identified, there may be a recourse to claim compensation due to the duty of care relationship that exists between the surveyor and you as the property buyer.
The Condition Report (also known as a RICS Survey level 1) was launched in mid-2011 as a cost effective method for home buyers to check the basic condition of their prospective property. The report is designed for relatively new, conventional properties that are deemed to be in a reasonable condition and are built using standard building materials.
Unlike a valuation report, the Condition Report does not consider the market value of the property, nor its value for insurance purposes. Instead it focuses on solely on the overall condition of the property. The report itself allows access by property buyers who may not have a large enough budget to cover the cost of the more expensive options. It is common for many to simply rely on the lender’s valuation report so the Condition Report can provide those with lower budgets peace of mind.
The valuation focuses on how much security the property provides for insurance purposes as opposed to identifying any other defects or problems that are not deemed significant. Much the same as all reports, the contract is between you and the surveyor.
The Condition Report aims to comment on and identify issues in the following areas, so prospective buyers are aware of them before they commit to a purchase.
- the construction of the property and its condition
- issues deemed serious and require urgent attention
- issues that require further investigation to prevent further damage
- issues that may be deemed dangerous
- advice for your solicitor with a summary of the key risks associated with purchasing the property (planning, guarantees, building controls etc.)
The report is presented using a ‘traffic light system’ whereby each part of the building and its services is given a rating in relation to its condition.
The Condition Report provides a ‘snapshot’ of the property’s condition on the day of the inspection taking place, and is not a full survey. The surveyor will not look at hidden or covered areas, and therefore the report will not identify all possible defects. It will also not make any recommendations or provide advice to you regarding how repairs or remedial action should be carried out.
Nonetheless, the report does give you some legal recourse if the surveyor was negligent within the parameters of the report.
The level 2 RICS survey is a compromise between a basic valuation and a Building Survey. It is offered as a moderately-priced option which is well within the budgets of most prospective buyers. Similarly to the Condition Report, the contract is between the surveyor and you as the prospective home buyer. There are two available versions of the Homebuyer Report – survey and valuations and survey only.
Survey and valuation
The report identifies any relatively obvious problems. The valuer will walk around the property and note any visible issues. They will not lift carpets or move heavy furniture to discover what problems may be hidden. The surveyor will carry out a visual inspection of services (gas, electricity, sewers etc.) as far as can be seen, but will not check safety aspects or carry out specialist checks.
As the applicant, you will have little recourse in the event that serious problems are encountered later. There is however a good chance that any major defects will be highlighted, allowing you to either reject the property by pulling out of the sale, plan expenditure to carry out required work or make an amended offer.
The report contains all the elements of the Condition Report, together with:
- a professional market valuation
- an insurance reinstatement figure
- a list of any issues or defects that may affect the property’s value
- advice on repairs and ongoing maintenance
- information about the location, the local environment and the property’s energy efficiency
The surveyor will not carry out an energy efficiency assessment, however if an Energy Performance Certificate (EPC) has been previously done, the details will be referred to in the report.
This report is presented using the same traffic light system as the Condition Report. Typical defects identified in the report include:
- dry and wet rot where symptoms can be visually seen
- problems relating to the condition and position of the damp-proof course
- problems relating to the interior of the roof space – beams, rafters and the underside of the roof (although the scope of the survey may be limited by accessibility)
- defects in the pointing (i.e. mortar joints)
The report will not make reference to any estimates for the cost of repairs, a detailed description of the construction of the building or detailed advice on specific defects.
The Homebuyer Report (survey) is a new type of report. It includes all the elements of the Homebuyer Report apart from the valuation and reinstatement values are also included.
Previously known as a Structural Survey, the Building Survey (RICS level 3 survey) involves a thorough and complete inspection of the property carried out by a qualified professional surveyor, engineer or architect. It is the most expensive option, but is still a worthwhile option for many property applicants.
If the property is defective, this will almost certainly be discovered by a Building Survey. If it is not highlighted, the borrower has recourse against the surveyor in a variety of cases, whose duty of care is only to the applicant they have the contract with.
Such a survey will be significantly more detailed than either the Condition or Homebuyer Reports. It will involve a detailed inspection of the property, including its structure and all elements covered in the other two report options. Drains and electrical systems will also be checked for suitability, along with the cause of any problems that are highlighted.
The surveyor will lift carpets, inspect the roof space and generally probe a lot more than other reports. The survey should be carried out subject to certain industry standards and so, in the event of later problems, the valuer may be liable for any losses as a result of negligence.
A Building Survey will include a valuation if the purchaser requests it. In some instances, the lender will not accept such a valuation as it has been commissioned by the buyer, and will insist on a valuation for its own use. This situation might arise if the surveyor is unknown to the lender and it would require considerable time or expense to validate the surveyor’s credentials.