Searchflow explain pricing issues within the local authority search sector – 20th June 2010
This article was first published in The Orange Rag and is reproduced here with the consent of Charles Christian.
David Kempster, the marketing director of MDA Searchflow comments on new charging regulations and their effect on property search pricing…
The way in which charges are levied for search information can be divided into two different eras: before the launch of HIPs and after the launch of HIPs. Before HIPs were introduced, the traditional approach to conveyancing meant that the buyer’s solicitor would simply order the necessary searches by post or increasingly electronically via NLIS, and pay for them.
This shift in the search information market put a lot of pressure on Local Authorities, who still needed to supply information to conveyancers (as before), but now had to deal with a near doubling of volume of the preferred personal searches from HIPs as well. In order to add further credibility to the usefulness of HIPs, and to attempt to reduce the duplications and inefficiencies that remained, new regulations came into effect in April 2009. These new regulations tried to encourage more comprehensive searches, whilst also discouraging search companies from cutting corners or using insurance for answers that weren’t previously available or that they would insure against. They also changed the way in which Local Authorities could charge for this additional information.
Since 6th April 2009, Local Authorities have been legally obliged to give private search companies full access to all relevant data as specified in the revised HIP regulations, to bring it closer to the content of the CON29 Official Search, which has traditionally been favoured by solicitors, especially when acting for the buyer. MDA SearchFlow has long felt that it was unfair that these lower-cost personal searches were effectively being subsidised by official searches which were highly variable in price — anything from £40 to £300 — and therefore believed that a more equitable pricing balance between the two search types was needed.
As a result of this same legislation, the cost for official searches began to come down, with the average now around £110-£120, as Local Authorities are now required to charge on a cost-recovery basis only From 1st January 2010, the Ministry of Justice implemented a rise in personal searches from £11 to £22 (statutory fee) to access Local Authority information, together with additional costs for the extra information required by the HIP regulations, such as Building Control and Environmental Health. The extent of this charging varies between Local Authorities, based on the cost of their operation.
Not only has the impact on private search company margins been significant due to HIP price pressure, but it has been compounded by the variable charges for the extra information (which need to be funded upfront), as well as the need for additional working capital. As such, when considered as a whole, these variable costs mean that a personal search will not necessarily cost less than a CON29.
From the end of June 2010, Local Authorities must be able to show how their books are balanced in order to prove their compliance with this new cost-recovery model. At the same time, Environmental Information Regulations (EIR) have been introduced following a 2004 EU directive, which has (clearly) been very slow to come into effect. As a result, Local Authorities will need to consider how they can provide certain pieces of information free of charge, which means that Local Authorities will have to become more efficient, find new ways to put more information online, and to charge less, which could (in some cases) have an impact on staffing and other operational considerations.
The Legal Services Act and Alternative Business Structures (ABSs) implementation from next year could force even more changes in how transaction efficiency and unit costs are managed. In fact, the Legal Services Act and ABSs are bound to drive even more structural and competitive change in conveyancing, including the more widespread adoption of electronic processes. At the same time, changes in the way that property search information is stored, curated and released by Local Authorities through the Environmental Information Regulations (EIR) will demand a cost-effective solution for them to connect content to the conveyancing professional in order to effect exchange and completion.
The good news is that all of these changes have sparked a renewed interest in how we, as an industry, can work together to get important property information through the system more efficiently and cost-effectively. This renewed focus, combined with the recognition that property search information must be at a standard that is acceptable to all parties in the chain, will help to get house sales moving more quickly, which is an objective that everyone, across all political parties, would like to achieve.