Home Information Packs will be required by more homeowners wishing to sell from three weeks time. But are there ways to avoid the fee?
Home Information Packs. Does anyone really know what's going on with them?
I haven't actually done so, but (if I were a betting Fool) I would put money on my thoery that if I stood out on a busy city street in the UK and asked 10 passers by to explain what the packs comprise of and who needs one, no one would be able to tell me. They have been chopped and changed so many times that barely anyone knows what is happening anymore!
The thing is they're in the news again -- and the reason for this is because from 10 September they're set to become a requirement for anyone planning to sell a three bedroom property (they are already a requirement for anyone selling a property with four or more bedrooms). As three bedroom homes are the most common type of property (indeed it's estimated that one million are put on the market every year in the UK) this will affect a great many more homeowners.
So what do the packs contain?
Well, in essence an Energy Performance Certificate (EPC), evidence of title and searches -- essentially some of those things that the buyer's solicitor would normally have had to apply for and collate. Around one in three property chains in the UK currently collapses, so by having the seller prepare this pack in advance it is hoped that the whole process will be sped up as buyers will know more upfront and be less likely to pull out.
When must the pack be ready?
Most estate agents will arrange for the EPC to be carried out before marketing - once this is ready they can commission a pack containing the rest of the documentation and put the house on the market. However, this is a temporary procedure - after 31 December the full pack will need to be ready before marketing. Packs should take no more than 14 days to be completed (most take around a week) and you must present your buyer with the pack upon exchange of contracts (or as soon as possible).
Packs cost between £300 and £500, and many homeowners wishing to sell are a bit narked. After all, those selling are likely to be buying too, and who really wants to have to spend an extra £400 on top of everything else?
Can you avoid paying for a HIP?
Interestingly, I have heard of a number of ways that we can avoid paying for a HIP. And as a moneysaving Fool I've felt it my duty to find out more. So here are a couple of the methods I've looked into to avoid paying for a Home Information Pack:
1. "I intend to market my 3 bed home as a 2 bed house with study - I won't need a HIP"
VerdictBedrooms can add a lot of value to a property - it's said that each one could add around £25K to the value of your home (depending on your location etc). By classing one bedroom as a study you could save the £400 HIP fee, but you could be shaving thousands off the eventual selling price of your home - particularly as many people search for homes online by number of bedrooms. This could be a very bad idea.
2. "My estate agent has included a free HIP in his marketing package so I don't need to pay a penny".
Verdict
Call me cynical but warning bells tend to go off when I hear that anyone is giving anything away for free. I've been investigating and a vast number of agents are indeed offering so called "Free HIPs" if you sell through them. This can be a good deal, but be warned that taking an agent up on this offer will tie you to them to some extent, and should you decide to switch agents in the future you will need to repay all costs they have incurred so far for the pack.
Additionally, I spoke to one agent to find out how the free packs are given. He told me that by law you have to pay for your own HIP, but what effectively usually happens is the agent will defer that payment. When the purchase is completed the agent simply reduces his fee by that amount to compensate. So although you pay say £400 for your HIP, you pay £400 less to your agent - so you effectively get a free HIP.
However, due to this you will be likely to find that there is no negotiation available on an estate agent's fees should you take up a free HIP offer, which depending on the selling price of your home could prove costly.
Looking at a very simple example, if you were selling a property for £250k and were to take up an offer of a free £400 HIP with estate agent fees set at 1.5%, your costs (payable to the estate agent) would be:
£250k x1.5% = £3,750
Agent's HIP refund +400
HIP £400
Total payable £3,750
Now, if you were to pay for your own HIP and negotiated with your agent to set his fees at, say 1%, your costs would be:
£250k x 1% = £2,500
HIP £400
Total payable £2,900
So in this case you can see that you could potentially save a whopping £850 by commissioning your own HIP - and the more expensive the property, the more you could save.
Of course, this is all assuming that you are prepared to negotiate hard with your local agents to reduce that fee as much as possible - but I reckon a lot of Fools are happy to do this. Even if you can only reduce it by a small percentage it could still make a huge difference to the fees payable. Incidentally, I have heard that some agents swear they will not be budged on their fees regardless of whether or not a HIP is taken out with them - but in my experience many will.
I'm therefore sorry to say that the only certain way I've found to avoid paying for a HIP if you have a three bedroom property that you would like to sell, is by getting it on the market within the next three weeks (before 10 September). Alternatively, some extremely private sales (with no marketing) can avoid having a report drawn up. If you know of any others please let me know!
If you can't get your home on the market so soon or you have a larger property, chances are you will need a HIP - but remember to take some time to weigh up all of your alternatives before making any decisions. Do your sums carefully - a free HIP may save you £400 but it could actually cost you far more. And don't forget to negotiate hard!
You can find out more at the Home Information Pack website, including information about how to compile your own HIP.
More: Top Tips For Homebuyers | Hips Are Here