The price is right

The recent Channel 4 article condemning the mark-up of Home Information Packs and claiming to have seen evidence that up to £100 could be being added to the price of a HIP because of secret payments to estate agents has done little to brighten up the image of HIPs.

The main issue surrounding HIPs is their universal unpopularity since they were first introduced in England and Wales in 2007. This unpopularity reached new heights in April this year when the first day marketing rules came into place, making it technically illegal to put a house on the market unless prescribed parts of the HIP are in place. It is therefore realistic to say that any issues relating to HIPs are always going to be exposed to greater levels of criticism and in many respects the current pricing issues have perhaps been overstated because of the controversial nature of the product itself.

However, it is imperative that the industry as a whole works to protect consumers '“ they are, as they are with any industry, the lifeblood of an organisation.

One of the issues with higher HIP prices is that it's harder to find a genuine differentiator when comparing the HIP in isolation, as every case is different. Look, for example, at search timings, which are dictated by local authorities and not by the supplier. Though, in truth, HIP companies that have a higher margin are more likely to have resource to dedicate to managing their energy assessor (DEA) resources.

Commercial principles

So, when looking at the HIP model in isolation it is important to remember that HIP providers offer products to estate agents on a wholesale basis and that the estate agent is then free to retail that product at any price he wishes.

This is the fundamental principle of commercial activity. Take any high street retailer as an example '“ the cost of a pint of milk, a sofa, a suit or any consumer item will be acquired by the retailer at a considerably lower cost than the price they then decide to sell the item for to their customers.

And low price and good customer service is not often the perfect match. There have been problems where cut price companies have neglected to chase missing Energy Performance Certificates or, in some cases, missing appointments with the customer entirely.

AHIPP, the association of HIP providers, clearly thinks that the current practice concerning HIPs is fair. This position appears credible. When signing up to AHIPP, members are subscribing to a code of practice and to standards that must be adhered to. We have regulation, and it's important that these regulatory bodies, be it the Solicitors Regulation Authority, Council for Licensed Conveyancers, or, in the case of a voluntary code, the AHIPP, uphold standards to protect consumers. But to suggest, as it has been by some, that estate agents cap their fees, raises some significant competition issues and goes against the basic principles of commerce.

Inevitably there will be some HIP suppliers who do not keep to these standards and the consumer, be it a business or an individual, must be protected. However, if a product or service is compliant from a regulatory perspective, it is important that retailers are free to sell this service at a price they can achieve.

Convenience v price

After all, customers are free to shop around, and can supply their own HIPs if they want to. The reality however is that a large number of consumers are not actually aware that they are entitled to do this and perhaps more could be done to raise awareness that this is an option.

Conversely, some customers may prefer to choose a higher cost simply because they prefer the convenience of having their whole transaction carried out by one service provider. It is a well-accepted fact that moving home is one of the most stressful times of a person's life so being able to just deal with one company for everything, even at a higher price, is often the preferred option. Shopping around for HIP providers or taking the DIY approach is obviously going to tie up much more of the customer's time, so often the convenience factor overrides price.

Ultimately the market will decide which suppliers consumers decide to use, and these suppliers won't necessarily be the cheapest but the ones who do a good job.

The current housing market has created conditions that we've never seen before, but to assume that prices for services will go down as a result isn't necessarily logical. If estate agents are taking less business, then it's more likely they may seek to increase, not decrease, their fees. Some estate agents are actually asking for deposits from customers to ensure they are serious sellers.

In disclosing referrals and mark-ups, again we need to make sure we are not tampering with the fundamentals of commerce '“ and many other business sectors charge commissions.

With regard to conveyancing fees, on many occasions instructions are obtained by third parties who charge a referral or marketing fee and this is a dilemma facing all law firms. The fact, however, is that providers of volume-based services, conveyancing or otherwise, are more likely to be supplying services on a wholesale, rather than a retail model. Like it or not, the cost of sale when obtaining referrals from third parties is likely to be considerably lower than obtaining instructions direct, and firms need to consider this when they are looking at their own business models. Every firm should understand its own commercial dynamics. The 'one-size-fits-all' approach has no relevance.

My view is that the market will decide which services consumers want '“ and how much they are prepared to pay. Referral fees are part and parcel of commercial activity and what's important is that consumers are given full information about the nature of such fees in a manner they understand, which is clear and is not subject to misinterpretation.

How to handle HIPs

So, how should firms be working? And how can customers trust people involved in a process they find difficult and complicated?

1. One important question is: are law firms making the most of HIPs? We are regulated on a compulsory basis so surely that's a massive selling point for the consumer and indeed the selling agent.

2. When it comes to the provision of HIPs, excellent customer service combined with the knowledge, skills and ability of an estate agent is likely to override price. Many of the estate agents that have gone out of business recently have been those lower-priced agents.

3. Where law firms are providing services through a third party provider, any referral fee needs to be disclosed to the customer in a clear manner.

4. Unless firms have a client bank that generates income or a following that matches the firm's business plan (and remember '“ not all firms are looking to expand) then they must grasp the shift from a retail to a wholesale model.

5. Finally, and simply, consumers can trust those providers who openly subscribe to transparent practices.

The introduction of HIPs has been far from smooth and the added cost at the beginning of a transaction has proved controversial. That cost would be mitigated if HIPs were available for all properties.

You can't create a perfect system from a standing start and most people would agree that the content of a HIP needs to evolve. Change is never easy and we have to work at it '“ and as professionals we need to be committed long term to that change and to the sustained improvement of the home-buying process.

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