Understanding Home Inspection Reports
Home Reports have been compulsory for Sellers in Scotland for several years. The idea behind them is simple:
Previously if 10 people were interested in buy a property, they would each instruct their own surveyor to inspect the property at a cost of at least £100 a time. It was not unusual for multiple potential Buyers to use the same surveyor, each paying a full fee whilst the surveyor did a single inspection and pocketed the profit.
With the introduction of the Home Report, the Seller pays for a truthful, warts and all survey of their home which is shared with all the potential Buyers. So what do you, as a But to Let property investor need to look at to understand the Home Inspection Report?
The Home Report is split into 3 main sections:
- Energy Performance Certificate
- Scottish Single Survey
- Seller’s Property Questionnaire
Energy Performance Certificate
The properties energy performance is rated in terms of the energy use per square metre of floor area, energy efficiency based on fuel costs and environmental impact based on carbon dioxide (CO2) emissions.
This measurement is supposed to incourge buyers to select more energy efficient properties. Older properties like this (circa 1900’s) tend to have an energy efficiency of just band F.
Additional insulation may increase energy efficiency to Band E. An easy energy efficiency improvement on most properties is to increase loft insulation to 270 mm. However this particular survey is for a ground floor flat, so the upstairs occupiers may have some questions regarding this recommended improvement!
Typically increasing loft insulation to 270 mm is a Low Cost method of improving Energy Efficiency and costs around £100 to £300 to install. Typical savings per year from increasing loft insulation to 270 mm is around £155 per year, so this is a very effective way of saving money on yours and your tenants heating bill.
Higher cost measures to improve energy efficiency include replacing existing central heating systems with a new condensing boiler. Typically installing a new condensing boiler is increasing High Cost method of improving Energy Efficiency and costs around £1,500 – £3,500 to install. Typical savings per year from installing a new condensing boiler are just £118 per year, so this would take over 10 years to make a return on the investment (ROI). So our recommendation is not to replace a working boiler with an energy efficient one, but if your existing boiler breaks down, then its good for the environment and your tenants to then replace it with a more energy efficient boiler.
Scottish Single Survey
To date, Purchasers have normally obtained their own report from their chosen Surveyor. By contrast, a Single Survey is instructed by the Seller and made available to all potential Purchasers in the expectation that the successful Purchaser will have relied upon it. The Royal Institution of Chartered Surveyors rules require disclosure of any potential conflict of interest when acting for the Seller and the Purchaser in the same transaction.
The Single Survey may give rise to a conflict of interest and if
this is of concern to any party they are advised to seek their own independent advice.
The single survey has 3 categories for repairs to buildings, with Category 3 indicating the most urgent repairs and Category 1 indicating no immediate action or repair is needed. The Scottish Single Survey Home Report repair categories are described below:
Category 3
Urgent repairs or replacement are needed now. Failure to deal with them may cause problems to other parts of the property or cause a safety hazard. Estimates for repairs or replacement are needed now.
Category 2
Repairs or replacement requiring future attention, but estimates are still advised.
Category 1
No immediate action or repair is needed.
Home Report analysis on a typical Scottish Buy to Let Property
The property we were interested had the following issues found during the Home Inspection Report Single Survey:
- Structural movement – Cat 1
- Dampness, rot and infestation – Cat 3
- Chimney stacks – Cat 2
- Roofing including roof space – Cat 2
- Rainwater fittings – Cat 2
- Main walls – Cat 3
- Windows, external doors and joinery – Cat 2
- External decorations – Cat 1
- Communal areas – Cat 2
- Outside areas and boundaries – Cat 2
- Ceilings – Cat 2
- Internal walls – Cat 1
- Floors including sub-floors – Cat 2
- Internal joinery and kitchen fittings – Cat 1
- Chimney breasts and fireplaces – Cat 1
- Internal decorations – Cat 1
- Cellars – Cat 1
- Electricity – Cat 1
- Gas – Cat 1
- Water, plumbing and bathroom fittings – Cat 2
- Heating and hot water – Cat 1
- Drainage – Cat 1
Further details on the Catgory 3 and 2 issues on this new property that we were considering as a Buy to Let property investment are listed below:
Dampness, rot and infestation
Repair category 3
Woodworm at the flooring and skirtings within the bathroom appears active.
Flooring in the bathroom and hallway is noticeably off level and uneven under body weight which could indicate that other areas concealed from inspection are affected. A timber specialist can provide advice on this matter.
The solid floor in the close is lifting upwards and badly cracked.
Walls are damp at the close. Some have been chemically injected which is an unpredictable technique.
Water is coming in under the back door to the close.
Chimney stacks
Repair category 2
Notes Eroded stonework and pointing. There is a risk that water is getting inside.
Rainwater fittings
Repair category 2
Guttering missing at the rear. Gutters are leaking. These could account for the cracking/deterioration to external wall finishes, sills etc.
Main walls
Repair category 3
There is a hole in the stonework at the gable. Cracked and damaged rendering. Pointing loose and where reapplied, it is proud of the face. This will eventually work away. Small string course type detailing at the close has allowed water to pool which
could potentially saturate through to the internal parts. There is a high risk of rot as a consequence.
Windows, external doors and joinery
Repair category 2
One of the windows in the front bedroom does not turn. The window in the back room is stiff to operate. Sub sills are almost flush to the external wall surfaces in places. This can accelerate deterioration to surrounding wall finishes.
Communal areas
Repair category 2
The window in the close is rotten. There is a lot of play at the frame and sill. The glass is non toughened which will represent a health and safety risk. Plaster cracking and damaged finishes to walls and ceilings. Where damp plaster will be contaminated. Risk of rot as a consequence.
Outside areas and boundaries
Repair category 2
Frost attack and eroded mortar joints at the brick boundary walling. This has been partly rebuilt. There is a lot of surface water over the garden ground indicating a lack of
drainage.
Repair category 2
Plaster cracking and damaged finishes. There is flex and movement at the kitchen ceiling. Joints are opening up.
Damp staining at the front bedroom. There is a risk of rot as a consequence. Ceilings will be lath and plaster. Older textured finishes can contain low levels of asbestos.
Floors including sub-floors
Repair category 2
As indicated, there is a lot of movement to the floors at the bathroom and hall in particular.
Water, plumbing and bathroom fittings
Repair category 2
Worn seals around sanitary ware. Underlying/surrounding areas susceptible to rot. No natural light nor ventilation to the bathroom.
Based on this home report, we concluded the property was poor value in comparison the other property which had been sold 2 days previously at the same price. The property required substantial work which was outside the scope of what a competent DIY expert and amateur property developer could be expected to resolve by themselves.
If this property had been for sale for £20,000 less, then the it may have been a buy to let bargain, however at this time the return on investment in a difficult market did not warrant the investment our risk.
We contacted the estate agent to say “The home report shows several serious issues. Also another similar property in the Street just sold on 3 days ago £5,000 less than this flat and was in much better condition, so I don’t think we will proceed with the property. “
Some times you need to understand when not to invest and this particular example was a good lesson in understanding when to walk away from a bad Buy to Let investment.