Home Reports 'inflate prices by 20%'

The "inexact science" of property valuation required under the new system has skewed the Scottish residential market by as much as 20 per cent, an industry roundtable event was told.

Sellers choosing the top of a range of valuations, which can be tens or even hundreds of thousands of pounds apart depending on the individual surveyor, may have kept house prices in Scotland inflated, despite historically low numbers of transactions and a continued dearth of mortgages available to home buyers.

Under the current Home Reports system - which continues in Scotland despite its counterpart in England and Wales being scrapped by the coalition government - sellers often get two or three valuations of their properties before committing to a surveyor who will complete the Home Report. This has led to fears that surveyors are inflating their valuations in a bid to win business - although this claim has been strenuously denied by the surveying industry.

Kennedy Foster, policy consultant Scotland for the Council of Mortgage Lenders, said the issue was a "concern" for both lenders and buyers.

"It is a real concern if someone is getting three (valuations] and every time there was quite a differentiation in price they took the highest price," he said.

Valuations have produced wide variations on the same property, reaching into hundreds of thousands of pounds. Richard Loudon, a property lawyer with Simpson and Marwick, believes the range between the highest and lowest estimate is typically about 20 per cent.

"It (valuation] is very difficult to do, 20 per cent is not unusual," he said. "I've been valuing property for 31 years and I find it incredibly difficult in this market."

Sarah O'Neill, head of policy for consumer rights body Consumer Focus Scotland, called for more accountability from the surveyors' profession. "I can't believe there is such a discrepancy. To me that has got to be an issue for a professional body," said O'Neill.

When the Home Reports system was devised by the Scottish Government, concerns that sellers would seek a range of valuations were dismissed as it was thought the cost of getting a Home Report would prohibit the practice.

But often surveyors charge a low initial valuation fee, which will then be included as part of the cost of the Home Report. For sellers, choosing the higher valuation makes the cost of undertaking more than one initial valuation survey worth the price.

Malcolm Cannon, chief executive of the Edinburgh Solicitors Property Centre and host of the industry roundtable event, said the process was "fundamentally wrong".

He claimed it could lead to surveyors adding more to the valuation in order to get the seller's business.

Cannon said: "Surveyors are charging perhaps 100 for an initial valuation then lopping it off the cost of the survey. If there is a differentiation of 10,000, 20,000 or 100,000 then to add an extra 200 on to your Home Report up-front to achieve a sales price uplift is fundamentally wrong." However, Stephen Craig, a partner with Hardies property and construction consultants, disputed the claim of surveyor price inflation.

Although Craig admitted there were often different prices put on homes for sale, he said wide variations in prices were "exceptional". He said: "I don't think that is the case. They are valuers, they are not chasing business."

Loudon added: "The problem is valuation is not an exact science. The whole concept [of a single valuation given in a Home Report] is flawed. It is based on the assumption that if you put three surveyors on the property they will all come up with the same valuation."

According to ESPC, average house prices in Edinburgh increased by 9.6 per cent annually during the second quarter of the year, up from the 5.9 per cent recorded during the first quarter of the year.

Properties in the capital sold for an average of 227,760 between April and June this year, compared with 207,890 during the same period in 2009.

Figures from Nationwide said that UK prices rose just 1.9 per cent over the past three months, although this still left them 9.5 per cent higher than a year ago.

Participants at the event in Edinburgh largely agreed with ESPC's analyst David Marshall that house prices within Scotland would remain flat or be slightly lower in a year's time.

Marshall said an increase in the supply of properties coming to the market coupled with the prospect of job losses in the public sector "should exert a downward pressure on prices in the months ahead meaning that the high levels of inflation we have seen recently will ease".

He added: "Towards the end of 2010 we would expect prices to be in line with levels witnessed late last year."

Foster of the CML said that in the quarter to the end of March, 40 per cent of purchases in Scotland were first-time buyers, despite claims to the contrary. However, the vast majority of these still required an average 25 per cent deposit to secure a mortgage. It is also believed a number of those so-called "first-time buyers" were, for example, recent divorces who took advantage of loose criteria to void paying stamp duty.