Legal Technology Journal

With technology-reliant HIPs lined up for 2007, strategic decisions will need to be made soon if your conveyancing department is to survive. The introduction of home information packs (HIPs) next year, along with the attendant administrative changes for solicitors and consequences for the mortgage lending, property information and surveying industries, threatens to be the biggest shake-up the residential conveyancing world has seen for the best part of 80 years.

However, while practitioners and law firm managers may be familiar with some aspects of the upcoming HIPs revolution, the complexity of the bigger picture – including the sheer range and complexity of the business models, opportunities and threats now facing law firms – means this is an area in which firms must plan their conveyancing business development strategies with care. Over the next few months some hard decisions must be taken and – as this article explains – simply buying the latest software and then hoping for the best is not a viable option. However, technology is vital to the success of HIPs. If it doesn’t work, then nor will HIPs. Come June 2007, if HIPs aren’t working, then nor will the residential property market.

Too brutal? Too simplistic? I don’t think so. Much of the evidence of the technology requirements of the emerging HIPs framework (principally the certification of home condition inspectors (HCIs) and access to the home condition report (HCR)) highlights a critical dependency. When coupled with the exacting business propositions of HIP providers that can’t be delivered without high levels of automation and multiple layers of collaboration, then, if anything, this becomes a fairly conservative statement.

Technology is, without doubt, the keystone around which the HIP industry is being built – but how does this dependency filter down as a factor in the strategic choices faced by law firms, and what other considerations weigh heavily on the shoulders of those charged with delivering a coherent HIP strategy?

At the most fundamental level, law firms have got to choose how they engage with this new business dynamic. This choice, fairly obviously, is driven by a need to match a strategy to a firm’s market position, its resources and its ambitions.

Player or passenger?

Each law firm will run its own analysis of the opportunity. They will consider their circumstances – what level of exposure do they have to residential property? Do they have good, direct relationships with estate agents? Are there similar relationships in place with developers, mortgage brokers or lenders? What level of resources can they commit? Perhaps most importantly, what’s their outlook? Do they have ambitions for their conveyancing business? Do they see HIPs as an opportunity they want to take? Is this reflected in their approach to risk?

Answers to these questions will shape a firm’s choice of HIP provider. Today there is a bewildering array of them out there, drawn from a wide range of backgrounds and with a broad spread of propositions. Some view conveyancers as clients, some as partners, and others as suppliers.

The HIP models

All successful HIP models are likely to offer the same core functionality, namely:

• introducer branding;
• on-line instruction, allocation and case tracking;
• deferred funding;
• automated workflow, panel management and document assembly;
• multimedia print and production; and
• hosting.

This functionality, however, is delivered in different commercial wrappings. At the moment, HIP offerings seem to be coalescing around three general models.

The third-party supplier

Typically the very largest HIP providers, which have well-defined routes to market. They are extracting their margin from working with high volumes and tightly controlling (often owning) the component suppliers of HCRs, searches and legal content. They present no realistic opportunity to conveyancers for engagement in the HIP production process and may also propose to control the subsequent conveyancing instruction. These are the organisations that will operate an HIP production business without any meaningful input from the profession at large.

The outsourced service

This category captures the majority of HIP providers. Here, organisations have much less control over the source of the instruction and consequently place a much greater emphasis on a solution that engages with the industry. They will typically respect the choice of component suppliers made by the introducers of the HIP instruction (whilst having their own preferred suppliers waiting in the wings as default options), but will still have a prescribed workflow that dictates how instructions are received, the terms on which suppliers operate and both the quality and the content of the finished HIP.

These providers offer the comfort of a managed service, which is a very real advantage to smaller or less ambitious businesses looking for a failsafe route to securing a supply of HIPs. What they don’t necessarily do is satisfy the needs of a firm looking to control the HIP as part of an overall strategy to create a value-adding, future-proofed business.

Application only

The third alternative is to take an HIP application and manage it yourself. The technology itself is likely to be common to a number of HIP providers but it is the control this model offers that differentiates it from the competition. Nimble operators can manage a highly responsive service that works on a local or regional basis, adding and removing component suppliers as required, controlling the commercial terms on which they offer HIPs and, perhaps most importantly, building a range of HIP options that differentiate themselves in the market. I don’t believe that one size will fit all, and I think agents are going to welcome solutions that are flexible enough to present a menu of HIP options that match the varying requirements of their different sellers with permutations around content, funding, delivery, component suppliers and service levels.

There is, however, an additional overhead associated with the management of such a service and there is a requirement to put in place the service elements that wrap around the core application – things like funding and publishing – although the market is already supplying these dimensions as modular, bolt-on options.

Matching models to strategy

So, how to choose? As a precursor, the first strategic decision is whether to stay in the market or not. For some, these developments will take the business beyond their tolerances. I expect a number of firms, large and small, will shed or shelve their conveyancing operations. For those deciding to stay in the market, the next choice is whether to produce HIPs or not. Some have already taken the view that they will concentrate on sourcing panelled conveyancing instructions generated by HIP providers rather than involve themselves in the HIP process.

For the majority, however, involvement in HIPs is a question of degree. Are they going to be passive or active? What role are they going to play – HIP supplier or component supplier?

Some law firms may find themselves supplying the legal content of HIPs to agents, developers, mortgage brokers or lenders because those companies have engaged with an HIP provider and exercised the option to specify their legal content suppliers. The subsequent conveyancing is likely to form part of the equation and feature in the commercial terms agreed. For me, this is the passive option which, whilst keeping a firm involved in the process, doesn’t otherwise promote its role. It is still going to be a ‘price taker’, and with a simple HIP, the value it contributes as lawyer to the HIP is pretty minimal, but it carries all the attendant risks of substitution and price as a differentiator.

To better control the relationship, law firms are going to need to step up and consider managing the delivery of the whole HIP. Here there are two options, both of which rely on the law firm presenting a solution to the agent or introducer.

First, the law firm itself can engage with the outsourced HIP provider – an obvious example is MacDonald, Dettwiler and Associates Ltd but there are plenty of others that have orientated themselves around the conveyancer. The law firm can then effectively populate the HIP provider’s infrastructure with its own component suppliers – co-operating with the introducer where necessary.

This is a tidy solution that should be able to deliver a compliant HIP with the best of them. It requires a minimal outlay from the law firm, but there are weaknesses. For example, how does a law firm differentiate its offering? Most of these HIP providers are going to be fairly prescriptive and are probably going to aim for the most straightforward of packs. What, for example, about including a separate legal condition report (one of the principal advantages in using a lawyer, I’d suggest)? Still, managed positively and in the right hands, this should offer the chance for conveyancers to take a lead role.

On the basis, however, that you can only reap what you sow, the second option offers greater potential reward. Taking the ‘application only’ route, law firms are not just titular heads of HIP operations, there simply by dint of having introduced an HIP provider; instead they are captains of their own ships, in control of both the client relationship and the service offering. This, in turn, includes the subsequent conveyancing. (Law firms going down this route will not have missed the significance of securing control of their core business. Indeed it may well be a principal driver.) Effectively, this option puts conveyancers in the same position as the HIP providers – many of which will themselves have sourced the application they use externally.

Because all HIP applications are hosted, there isn’t the usual up-front capital cost that normally dampens the enthusiasm of the independent, nor indeed an infrastructure overhead. Firms taking this route are almost by definition going to be those that can command the interest of agents and other introducers, have the resources to pull an operation together, and understand the benefits to their introducers of a highly flexible and responsive HIP production facility.

Routes to market

Unsurprisingly, the key route is the estate agent. Some law firms will build on their specialist client bases to work with developers and lenders to cater for their particular requirements, but for the overwhelming majority, it’s the independent agent who is the key. These are the relationships that need to be nurtured and worked on. Agents themselves have a number of fears and concerns about HIPs that need to be addressed, ranging from their impact on the property market through to their own competitive positions relative to the corporate agents, as well as the performance and liability issues of the HIPs themselves.

I suggest this is a perfect time for law firms to demonstrate thought leadership. Those law firms that concentrate on the overall picture and treat HIPs as part of a bigger house-transfer process are, for my money, the firms that will be getting it right.

Exploring this area with agents should also help law firms clarify which route they want to travel down. If there is a meeting of minds and a new recognition of the mutual interdependency of conveyancers and independent agents, then that might fire the ambition of all involved. Certainly, most firms are already some way along this line and are gauging very carefully the appetite of their prospective introducers.

Where’s the technology?

Despite highlighting the critical importance of technology to HIPs, the actual burden falling on law firms is surprisingly light.

Working with either an outsourced service or indeed a hosted application doesn’t place a burden on a law firm’s IT systems. At its most basic, a firm need only upload documents manually to an external application. In truth, however, for any firm considering a strategic move into the HIP arena, this isn’t a satisfactory position. Successful firms are going to need to have built workflow around those components they are providing – so searches, seller’s information and evidence of title modules are going to be necessary. How much more vulnerable are you as a supplier of HIPs if your own components are delivered late, inaccurate or incomplete?

Similarly, in addition to workflow supporting your processes, you are would be well advised to move your outputs around as data rather than documents, to facilitate accurate and speedy compilation. The format you’ll want to use is XML that complies with the newly published Property Information Systems Common Exchange Standard (PISCES – see www.pisces.co.uk). The majority of case management suppliers should be able to offer both the workflow and the PISCES XML format, but you would be wise to check.

Beyond this, law firms would do well to consider HIP technology in the context of e-conveyancing. Whilst the actual processes are different, there is an underlying continuity from the technology perspective. Interacting with the Land Registry’s e-conveyancing hub, and thereby the chain matrix, is almost certainly going to place a similar pressure on conveyancers to work with data in an XML format using a prescribed protocol – which everyone hopes will fall under the PISCES banner.

However, your choice of outsourced supplier or application does require very careful consideration of the technological capabilities on offer. First and foremost, today you want a demonstration, not a presentation. There may well be some suppliers that haven’t even reached the start line (no one, incidentally, has crossed the finishing line).

You then want to test for the core functionality described above. Competition is going to be so fierce that if you can’t tick all these boxes you are at a potentially fatal disadvantage from the outset. The best offerings are likely to have addressed what, in technology terms, are peripheral matters, such as how late documents are added or how HIPs are moved between agents. You should be raising these detailed operational considerations and be asking for technological solutions. Finally, you need to understand the detail concerning what freedom you will have, in practice, to specify component suppliers, offer branded solutions and enhance or develop the HIP offering.

Timeframes

1 June 2007 remains D-Day. Notwithstanding the vocal objections being raised from within the property sector, the government and the HIP industry are holding this line. For my part, I think that law firms stalling preparatory work on HIPs in the hope that this date moves are being commercially irresponsible.

On one level, the uncertainties around the dry run and the lack of accredited HCIs much before the autumn gives some comfort to those opposed to the introduction of HIPs. However, on another level altogether, there is a feeding frenzy going on out there. Agents are punch-drunk from a steady stream of HIP providers pitching for their business; a whole new conference industry has sprung up; ancillary services around HIPs have been launched offering funding products, publishing options, specialist building reports etc; and the corporates are spending millions buying up strategic businesses. It’s this level that should be taxing law firms. If they are not best prepared and best positioned then this activity is going to seriously disadvantage them – even in the unlikely event that timescales do shift. No one should be in any doubt that the deals that are being done and the alliances that are being built have implications far beyond HIPs. They are redefining the market dynamics of the residential property industry.

To conclude

HIPs are only going to be successfully delivered by technology. Sourcing that technology is as much about a firm’s strategic position and ambition as it is about the functionality of the software. The good news is that conveyancers do have a number of options – any number of which should suit any particular circumstance. A useful starting point for any research is AHIPP, the Association of HIP Providers – www.hipassociation.co.uk. Furthermore, integration with or operation of such technology is not going to be unduly difficult. For their own inputs, best practice will quickly point firms to PISCES-compliant XML workflows.

Beyond this, however, the challenge to law firms is to source the commercial relationships that will fuel their HIP businesses. Firms that, for whatever reason, are treating this dimension complacently are sleepwalking into trouble.

I believe that the vast array of HIP technology that is out there should be treated by the profession as an exoskeleton – a means by which conveyancers who embrace it can compete with the largest corporate suppliers on even terms for agents’ business, both for the new HIPs market and the truly important conveyancing market. 

Richard Hinton is the head of residential property at LexisNexis Visualfiles, and the commercial architect of the business’s HIP application.