Residential property transactions are taking much longer and price transparency presents a new challenge to solicitors in a softening market, the Gazette’s latest roundtable hears.
At the table:
Rebecca Swain Thomson Snell & Passmore Zainab Dakhil Royds Withy King Mo Hakim Child & Child Paul Albone tmgroup Dagmara Cyprys Kingsley David Hema Anand Bircham Dyson Bell Laura Conduit Farrer & Co Eduardo Reyes Law Society Gazette Claire Dunn Woodfines Joe Pepper tmgroup Melinda Giles Giles Wilson Stephen Ward CLC Nigel Coates Russell-Cooke Lara Murrell Goodman Derrick Robert Barham Pemberton Greenish
Solicitors at the latest Gazette roundtable reflect that events that were once rare in their professional lives are now happening more often.
Farrer & Co partner Laura Conduit prompts nods of agreement as she relates episodes from the last year: ‘I’ve seen several transactions fall out of bed between exchange and completion,’ she says. ‘We’ve exchanged contracts and, for whatever reason, the money isn’t there on the completion date. We serve notice to complete, the money still isn’t there and we’ve rescinded contracts. I’ve done that involving some quite significant sums of money over the course of the last 12 months – which might be chance – or it might be the start of a trend.’
Conduit adds: ‘I’m hoping not to see too much more of that, but it’s perhaps a sign of people’s ability to finance – of overconfidence. It’s not uncommon at our end of the market for people to exchange and think about their mortgage offer between exchange and completion; rather than the traditional model of ensuring you’ve got finance in place before exchange. And that is despite us giving advice that that’s the sensible way to do it.’
Stephen Ward, director of strategy at specialist regulator the Council for Licensed Conveyancers, has witnessed something similar. ‘That certainly sits with what we see as the regulator,’ he says. ‘We monitor quite closely the patterns of transactions going through the firms we regulate, and we regulate the full spread of firms from the very largest to very small.’ Ward also notes a shift towards remortgaging and ‘a slightly slower market generally’.
He adds: ‘Something else we’ve noticed is the greater time it’s taking to get from offer to completion… extending out to quite eye-watering lengths.’
Calling the shots
Many transactions are taking eight to 10 months from offer to completion, attendees report, a trend that Child & Child partner Mo Hakim traces back some 18 months. ‘It’s a buyers’ market, so they very much call the shots,’ he says. ‘They dictate terms for the vendor. Now vendors are actually having to take a view and perhaps concede on points, whereas in the past they would have held their nerve and told the buyer to take a running jump.’
Rebecca Swain, partner at Thomson Snell & Passmore, adds: ‘Chains are much longer than they used to be, therefore it is taking longer because you’ve got more risk of somebody losing a buyer, somebody pulling out of a purchase.’
Melinda Giles, a partner at Essex firm Giles Wilson, describes the market as ‘slightly quieter, but not dead’. In central London, of course, it is common knowledge that Brexit uncertainty has led to a softening of sentiment.
‘Buyers are being very particular and selective,’ reports Robert Barham, partner at Chelsea-based Pemberton Greenish. ‘Nobody’s really prepared, in this market, to take a view on things. A rising market washes out problems very quickly and nobody has confidence that the market is moving in the right direction. In fact, in London, it’s moving down of course [and in central London has been] for two or three years now.’
London’s attraction for international property investors is not a feature that affects much of the rest of the country however. Woodfines partner Claire Dunn, based in Milton Keynes, says: ‘I don’t think Brexit has really affected people. The people I deal with, in the main, are moving house because that’s their home. They’re not investors, they’re not from overseas, they are your usual everyday man on the street.’
Dunn, though, highlights a problem common to all parts of the residential property market –the shortage of properties coming on. ‘I’ve recently had people pulling out of their own sale because they can’t find anywhere else to buy,’ she says.
Swain believes the effect of Brexit on the wider property market does manifest in this supply issue: ‘Brexit uncertainty is leading certain people not to put their property on the market because they’re worried they’re losing out on the price. They would rather delay and see what happens.’
The supply of new-build properties to the market, it is noted in passing, is not greatly affected by this.
Longer transaction times are one reason profit margins in residential conveyancing remain a problem for many solicitors. Difficulty in recruiting good residential property lawyers is not mirrored in higher fees.
In this regard, Giles explains, estate agents play a key role. ‘They demand referral fees,’ she points out, ‘so in a £500,000 transaction, they would ask for maybe £250 [from] the solicitor.’ It can be ‘galling’, Giles says, to see an agent receive ‘10 times’ a solicitor’s fee for less work.
‘The estate agent is the first point of contact and has such a big level of influence over the buyer, which definitely does affect the transaction [service] that the solicitors are providing,’ she adds.
Given such low margins, service levels are a challenge to maintain – which ‘demotivates the team’, Hakim notes: ‘If they feel like they have to drop their fees all the time it’s quite hard for them. Teams have targets, departments have targets.’ For that reason it can be important to ‘hold your nerve’ on fees and not compromise on quality. He adds: ‘When you are demotivated, when you are struggling, that’s where we drop the ball. So, it’s about balance – ensuring you don’t cut off your nose to spite your face.’
As Zainab Dakhil from Royds Withy King says, referring to volume conveyancers working for £500 per transaction: ‘We’re heavily regulated, we have service standards, I think everyone does, but it’s whether you can meet it at £500 a pop. I can’t see how.’
Although conveyancing remains price-competitive, Dakhil notes some change in public attitudes: ‘Most people [doing work] at that level aren’t qualified and I think the public, fortunately, are becoming more educated on that point.’ She notes a rise in referrals from clients’ family and friends.
At previous roundtables there were many harsh words for volume conveyancers (derided as ‘bucket shop operations’). But they are not considered culpable for the increasing length of transactions: ‘It is the buyer/seller not quite being in the right place and not quite being motivated enough to get the deal done quickly,’ Conduit notes, to general agreement.
Ward adds: ‘We don’t see in terms of the information we get from firms from their clients through complaints, or complaints that come to the much-loved Legal Ombudsman, any difference in the proportion of complaints between firms… Looking at the ombudsman’s figures, for the last year they reported on, the numbers of complaints that are coming through about different types of firms are fairly predictable based on transaction volumes.’
That may be, as Ward notes, because ‘there are firms that appear very traditional that are doing volume conveyancing work’.
The conversation turns to price transparency. Driven by Competition and Markets Authority proposals, firms will soon be required to publish price information on their websites. Conveyancing is already price-competitive; yet there is, nevertheless, concern that a focus on price alone will distract consumer attention from the value of advice and service.
‘Consumers have been very motivated by price in the past,’ Ward observes. ‘To a degree, I think estate agents have driven that by presenting conveyancing as a nasty technicality you have to get over so that you can have your housewarming party, rather than the extremely valuable professional due diligence that ensures you can use that home in the way that you want to.’
But finding a systematic way to measure and convey quality of service is a challenge. Joe Pepper, CEO of search company tmgroup, says: ‘I’ve seen lots of people who have said: “We’ve got a great idea for measuring how well a firm is doing.” You look at it and think: “Well, you’re measuring one thing, normally, in that process, and it’s not particularly compelling.”’
Nigel Coates, head of the conveyancing team at Russell-Cooke, concurs: ‘It’s almost impossible for the consumer to know what they’re paying for in terms of service. We all like to think that we distinguish our services from others but it’s incredibly difficult for the consumer to form a judgement.’ He adds: ‘My firm tries to build long-term relationships with our clients so that we are acting for them on multiple transactions and in different areas, rather than just take that piece of work and not try to extend it as a client relationship.’
Reducing that to information that can be compared between firms is a challenge. As Coates notes: ‘There are lots of sophisticated websites out there that seem to show a very similar kind of service, but not necessarily delivered on the same basis.’
Furthermore, will information on price be interpreted as a fixed fee? Or will clients accept it is a quote that comes with caveats? ‘No two properties are the same at the same price in the same area,’ Goodman Derrick’s Lara Murrell points out. ‘It’s not as clear-cut as [saying] every property at that price will be this fee. I’m not entirely sure it’s going to deliver.’
Hakim adds: ‘Pricing is always going to be subject to assumptions and caveats. You may find it doesn’t actually take the consumer any further forward in terms of visibility.’
‘I’d usually spend half an hour on an initial phone call, talking about the client’s property, why they’re buying it, what their long-term plans are, do they need tax advice, do they need immigration advice? Is it an investment, is it a personal thing?’ Conduit notes. ‘There’s a long conversation that we have before I even get near giving a quote. It’s going to be very difficult to publish black-and-white numbers without that nuance and grey [area].’
Lawyers need to communicate better, Bircham Dyson Bell partner Hema Anand suggests. The task at the outset is to ‘explain the service you’re going to deliver’ and then, ‘en route’, the impact on cost of client demands and developments.
A relatively new feature of the market is further increasing the need for good communication at the outset. The new online-only model of agents are a cause of concern for solicitors, Swain notes: ‘There’s no after-care service, they’re not project managing the team, they’re not making sure mortgage offers have gone out, that surveys are done. We’re all having to chase things like that now, whereas that was always the role of the estate agent.’
She adds: ‘So, if you’ve got an unsophisticated buyer who doesn’t know when they’re meant to be doing this and nobody’s telling them they need to do it,’ delays occur and deals fall through. ‘I was six weeks into a transaction and we found out the buyer at the bottom hadn’t even applied for their mortgage offer because nobody had [told] them they needed to do it at that stage.’
Property and technology
How is technology affecting conveyancing? Of course, Pepper notes, electronic communication has replaced ‘snail mail’, but he adds: ‘Ultimately, all you’re doing is making something that existed previously work a little bit faster, and with a little bit more of an audit trail associated to it.’ The processes of research, checks, searches and queries are largely driven by service level agreements (SLAs), not changes in technology.
Having worked for lenders and with estate agents, Pepper relates: ‘A post-valuation query is a classic example. You might have a really simple question that you want to ask the surveyor, based on what they’ve provided. Probably, unless you actually pick up the phone and drive your way through all the different gatekeepers to find out who that is, which is going to take you and your firm a long time, you’d send an email. It probably ends up with a lender who’s got a three-day SLA before they’ll even open and read that. Then, they’ll forward it on to a surveying firm… they’ll probably have an SLA of two days before they then look at it, then they’ll forward it on to the surveyor, who might look at it within a day. Then, he’ll send it back, and they’ll have a two-day SLA to turn it around and send it to the lender.’ Thus a simple query takes a week or more.
Individually, firms are, of course, continuing to invest in IT. ‘We use a lot of technology to get our transactions going,’ Anand explains. ‘We’ve got share files and I love share files because then I know the client has actually looked at my report.’
Clients, though, vary hugely in their expectations of how a lawyer communicates with them. ‘Many clients want to meet and have it in writing and are not interested in a PDF. They are not going to look at [documents] on an iPhone or Android device,’ she adds. IT investment for her firm is driven by clients saying – ‘I want it done quicker’.
On the horizon is the possible use of blockchain technology in conveyancing. Paul Albone, chief operating officer of tmgroup, summarises its appeal as ‘one version of the truth, [which is] what we’re actually all after’. The current barrier is cost, he notes, meaning his interest is instead in online ‘collaboration tools’ that bring together data that can be trusted from consumers, conveyancers, lenders and surveyors. Here, again, the aim is that ‘single version of the truth’.
‘Data is becoming far more widely available, immediately,’ he continues. The challenge is to develop business processes that can respond to a search taking ‘seconds’ rather than days. He points to the Liverpool Land Charge Register, digitised the previous week, where a search took one customer 38 seconds.
Barham points to the likely influence that insurers will have on tech: ‘I’ve been doing conveyancing quite a long time,’ he says, ‘and when I started, buying an insurance policy for a certain aspect of a transaction was extremely rare – but now it’s become very common.’ Such policies are taken out to cover items such as missing building works certificates.
Barham continues: ‘I was reviewing a transaction the other day where we had no fewer than four policies we were buying – and I wonder how long it is before we just simply buy a comprehensive title policy, which is, I think, what they do in America.’ To do so will require ‘some basic data’ to insure against, which is what blockchain could provide. ‘I think that is going to be a big change in conveyancing,’ he concludes. ‘It could actually change the whole process.’
In contemplating such dramatic changes, Hakim notes it is important to appreciate the strengths of the current conveyancing regime. ‘I think the due diligence that we undertake with the property system here is probably unrivalled across the world,’ he argues, ‘and that’s something which, when you’re speaking to clients who are not educated, is quite important to impress upon them.’
‘I think it’s very easy to be, perhaps, a little over-critical of our system,’ Coates adds, ‘which has a good deal of flexibility about it. I’m sure that there are certain progresses that can be made to make it even better but I don’t think it’s necessarily as broken as many people might suggest it is. Be careful what you wish for.’
This roundtable was kindly sponsored by tmgroup