A quick summary of what mediation entails

Mediation is a voluntary process in which the people involved in a dispute agree to sit down together with a neutral third party – the mediator – and discuss their mutual problem. They then work together, seeking a solution to the problem with which they can all live. Most often there are two people involved in a dispute, but there is no limit to the number that can be involved, or to who can attend a mediation to help resolve the dispute. While the mediator facilitates this process, the solutions that the people in the dispute come up with are entirely their own.

Mediation is voluntary because if someone absolutely does not want to attend a mediation, trying to force them to do so is unlikely to help in reaching resolution. You may have all kinds of misgivings about the party or parties with whom you are in dispute as you go into mediation, but essentially you must want to at least try to solve the problem. Mediation cannot work in any other way.

Generally, as the first step in the mediation process one party will contact the mediator expressing his or her desire to explore the options for mediation. If the dispute has reached a point where the parties are no longer in communication, most mediators are happy to speak to each person individually and confidentially, and to handle all contact in setting up the meeting between them if that facilitates the process. What the mediator cannot do is to force or coerce the other party to attend. All he or she can do is to talk to them and to explain the principles and processes of mediation, taking care to answer all their questions. Once the parties agree in principle to mediation, and before they’ve even sat down with the mediator, they are showing a willingness to resolve the dispute.

Mediation’s emphasis is on moving forward – not on looking back. Your dispute has got to where it is now and, however it got there, focusing on that part of the problem usually does not help anyone come to a resolution. Mediation’s purpose is to focus on the future and to progress on new terms with which everybody can live.

When you go to court, the focus is always on the past: who has been at fault, who has broken a contract, who has done something wrong, who has done what to whom. At the end of the court process a decision is handed down by the judge which attributes blame and prescribes a remedy. The court generally makes no attempt to give direction on how the parties should proceed in the future, and certainly does not want to involve itself in any ongoing supervisory role. This can be particularly difficult if the parties have to remain in any sort of relationship with each other such as in family cases or in cases involving relatives or work colleagues.

Mediation’s focus is on how to move forward and this is achieved by directing attention on how to solve the problem. It can also contain agreed terms for the future conduct of the relationship, if that is what the participants want.

Disputes in any context tend to generate a lot of bad feeling and high levels of stress. Have you ever been in a dispute with anyone? Most of us have. No matter how small the argument, feeling angry, unheard and misunderstood does not feel good, even if you are convinced that you are 100% in the right. Relationships of all kinds can be heavily damaged by dispute. The longer people remain in dispute with each other, the more they look for evidence to support their point of view in the argument and they therefore focus on the dispute. They fixate on this and focus all their energy on it to the extent that finding a workable and amicable solution that helps find a way out could not be further from their thoughts.

When people are in conflict, stress levels can rise sharply, and this is not healthy for anyone on either side of a dispute. Relationships outside the argument can also suffer when someone is very angry for such a very long time. When an amicable, acceptable resolution is reached, stress levels immediately drop and people feel much more positive and much lighter. A weight is lifted from their shoulders and the time and energy they once focused on the argument can now be used for things that are helpful and enjoyable to them.

Mediation is entirely confidential. This is another very important point and must be strictly observed by the mediator and by all parties to the dispute. Anything that is said or done in a mediation cannot be revealed to outside parties either during or after the mediation.

Mediation is also ‘without prejudice’. If your mediation is one of the few that is unsuccessful, and the decision is taken to proceed to court, whatever was said in the mediation may not be relied on in court by either party without the express permission of the party that made the statement. This means that if something new comes to light in an unsuccessful mediation, this information cannot be brought into the legal arena. Neither can the mediator be brought into the legal arena as a witness, save on the orders of a Judge.

The description of the mediation process as without prejudice means that anything said during the mediation cannot then be used as evidence in any legal proceedings which are being considered or already started. This allows parties to talk openly about options for agreement. Parties are able to suggest new and creative possibilities for agreement without jeopardising their chance to go (or to go back) to court if an agreement isn’t reached. A mutually agreeable outcome is often one which could not have been reached in court.

With the exception of family mediations, where some records must be kept, the mediator destroys all notes and information relating to the meeting apart from the agreements to mediate and the record of the attendees at the meeting. This further protects the confidentiality of all who attend as there is then no danger of any information falling into the wrong hands.

The voluntary and non-binding nature of mediation means that parties are not compelled to reach an agreement and options for an agreement can be discussed without binding themselves to a particular outcome. There is no consequence on the parties if they are unable to agree (other than financial loss where the mediation is self-funded). Mediated agreements are only binding if both parties wish them to be.

During a mediation, while the mediator assists and facilitates the process, the parties are responsible for generating options for agreement and the terms of any settlement reached. The mediator does not offer their opinion on the merits of either party’s case or seek to determine or impose any outcome. They do not make suggestions or recommend proposals for agreement (but may pass offers between the parties if requested to do so). Any agreement reached must be mutually acceptable to all parties and will have been created by them.

It is integral to the mediation process that parties are able to make informed choices, about what to propose by way of agreement and whether to reach a settlement. Mediators encourage parties to explore their positions so that any agreement reached can reflect their needs and interests. Mediators also encourage parties to consider the likely alternatives to reaching a mediated agreement to objectively assess any offer on the table. When a dispute involves legal rights and entitlements, parties should seek legal advice before commencing mediation. Parties may have a legal adviser present during the mediation (or available on the telephone), or be given the opportunity at the end of the mediation to consult a legal adviser before reaching a legally binding agreement.

Mediation invites parties to widen the potential options for agreement and explore new possibilities and ideas. Mediated settlements can be reached where direct negotiations have failed by getting the right people in the same room and breaking down barriers to communication. The time spent by a mediator encouraging parties to explore their own needs, as well as those of the other party, enables participants in mediation to make practical proposals. Such offers may have added-value as they may have huge significance to one party but can be provided with minimal inconvenience to the other. It may involve looking at previously unconsidered options and widening the options for agreement.

The Property Ombudsman offers free, impartial and independent service for the resolution of unresolved disputes between consumers and property agents. The scheme has been providing consumers and property agents with an alternative dispute resolution service for 27 years. A member agent signed up with The Property Ombudsman is obliged to adhere to a code of practice which consumers can take confidence from.

Property Investment Appraisal

What exactly does the ‘appraisal’ of property mean? There are two distinct applications in mind. By ‘appraise’ we could mean

a. To fix a price for (an asset);
b. To estimate the amount, or worth or value, of (an asset)

The first of these meanings implies what is known, in the UK, as the valuation process or, in the US, as the appraisal process: the estimation of market value or the prediction of the most likely selling price. There is now widespread acceptance of the international definition of market value set out in the valuation standard of the International Valuation Standards Committee, commonly known as ‘the White Book’ (IVSC, 2005), which is now in its seventh edition.

This definition is the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had acted knowledgeably, prudently and without compulsion.

Many nations also feel the need to have their own valuation standards, not least the UK, whose standards [maintained by the Royal Institution of Chartered Surveyors (RICS)] have been through a number of editions of what is commonly referred to as ‘the Red Book’. The latest edition (RICS, 2003) is the fifth and has adopted the aforementioned basic international definition.

There are even attempts to create regional standards (such as the European ‘Blue Book’, published by TEGOVA, The European Group of Valuers of Fixed Assets), and this has created some tension and rivalry between international, regional and national bodies, particularly in Europe.

However, there is now very little disagreement, if any, on the general wording of the market value definition, even if there are some differences in interpretation. These differences will continue to diminish as the property investment market becomes more and more international.

The second of the two meanings, the estimation of worth or value, is not necessarily market-based. Since 1995 this concept has been developed and institutionalised, having entered UK valuation standards in the 1990s as the ‘calculation of worth’, and now defined in the White Book under the term ‘investment value’.

The term ‘calculation of worth’ has now – happily – been dropped by the RICS in favour of the international definition.

The definition is as follows: the value of the property to a particular owner, investor or class of investor, for identified investment objectives. This subjective concept relates specific property to a specified investor, group of investors, or entity with identifiable investment objectives and/or criteria. This definition does appear to fudge a major issue, specifically whether worth or value is to an individual investor or to a group of investors. This has significant implications about how it might be assessed in practice, as the value to an individual and the value to a group may not be the same.

Individual investors are influenced by a set of criteria by which the value of an asset might be assessed. For example, their tax situation, the rate at which they can borrow, how much equity capital they have to spare, what adjoining assets they own and the strengths and weaknesses of their existing investment portfolio are all factors that may lead them to perceive value in a particular property.

Hence, while all investors may agree upon such important variables as the size of the asset being appraised, the cash-flow implications of the lease and the likelihood of achieving planning permission for a change of use, individual investors will always be subject to different motivations.

The distinction between value and worth can be important. Further, it is possible that a group of investors will use the same criteria and share the same characteristics, and would as a result attach a similar value to a property asset. Identifying the possible buyer group is very relevant to appraisal, which is therefore the process of identifying a mixture of objectively measured market variables and the prospective owner’s (or group of owners’) subjective estimates of other relevant factors.

We could use the term ‘appraisal’ to cover the process of estimating either market value (the prediction of the most likely selling price) or investment value (the estimation of worth to an individual or to a group of individuals).

We could therefore encourage the use of the term ‘market valuation’ or ‘valuation for pricing’ for the former, and we would prefer to use ‘investment value’ for the latter. We hope this will not cause too much confusion, but the possibility of confusion unfortunately exists, grounded in the fact that the development of property terminology has been influenced by the isolation of the property world from the securities markets.

There is no doubt regarding the meaning of valuation in the securities markets: it means the estimation of worth.

Pricing is a function that is carried out by buyers, sellers and market makers. The price of a particular company in the stock market is publicly quoted, and large numbers of identical shares in that company can be bought and sold. In property, however, there are no market makers.

The price at which a transaction will take place has to be influenced by an expert opinion – a ‘valuation’ – because there is both insufficient market evidence and insufficient homogeneity of product for traders to be able to fix prices. It is therefore to be expected that at any one time different views of worth will be held by different individuals and these differences will fuel market turnover.

In addition to the main concepts of market value and investment value, ‘sustainable value’ (mortgage lending value), a relatively new phenomenon used in the bank-lending process, has been developed in mainland Europe. It has found some favour, particularly within German banking systems, and the mortgage lending value basis has been adopted, along with market value, within the international banking regulatory process known as Basel.

The concept sustainable value has been subject to intense criticism, as of it does not conform to any recognised economic concept of value and the definition is virtually incomprehensible. The implications for investors can be damaging and may have had some impact on the German open-ended fund crisis of 2005/2006. But it is arguably of no merit and should be abandoned.

The stock (property) selection policies of both major and minor property investors often include an examination of the mismatch between estimates of market value and investment value in order to spot pricing anomalies, and any investor or advisor will benefit from a clear understanding of the difference between the market value of an asset and its worth to an investor or group of investors.

If there is a difference, is this evidence of poor-quality appraisal? It is widely believed that market valuations should primarily be accurate; that is, they should closely predict selling price.

Accuracy may therefore be a relevant and useful test of the quality of a market valuation. Investment valuations, on the other hand, should primarily be rational; they should be professional and expert reflections of a combination of objectively measured market variables and the prospective owner’s subjective estimates.

Building a Property Portfolio? Some considerations

The overall demand for private rented property is now stronger than ever, with the mortgage market restricted for purchasers and house price inflation, particularly in the south east, creating the need for high deposits which people cannot find. Lending has become far more stringent, owing to the onset of the credit crunch and the banks unwillingness to loan money, particularly to property investors. Essentially, accessing finance has become a big issue. The banks favour those with large cash deposits. This is the same in the buy-to-let sector as for domestic mortgages.

However, if finance can be arranged then the yields that one can expect from buy-to-let properties are high by comparison, currently standing at 6%. Of course, this depends on where the property is located. See overleaf for a table indicating the best buy to let areas in the UK. A yield is a portfolio’s annual rental income as a percentage of total value. The reason is that demand for private rented property is high, particularly as first time buyers cannot get a toehold in the market. They are instead turning to the private rental sector. Therefore, investing in property, for the longer term, as opposed to investing for short-term gain, is still a viable option.

Rental returns on buy-to-let are biggest in regional centres like Southampton, Manchester and Nottingham – where one in four homes are now privately rented. Property investors are looking way beyond London and identifying regions where yields are almost three times as high as in the capital. Cities offering the greatest yields – rental income measured against the property cost – include Southampton, Blackpool, Nottingham and Hull.

The latest data on buy-to-let returns, from lender HSBC, also shows the proportion of property in each area already owned by landlords. And in many of the top-yielding areas private landlords already own one in four properties, or more. Southampton, with rental yields of 8.73pc, currently tops the list for rental returns. Manchester, Nottingham, Blackpool and Hull complete the top five locations with the best rental yield at 7.98pc, 7.67pc and 7.47pc respectively.

In all of those areas, except Hull, private landlords already own one in five properties, or more. These areas also offer the characteristics that make for excellent buy-to-let investment, the experts say: relatively low house prices coupled with strong demand for rental property from large student and young professional populations.

The lowest yields were registered in areas such as London where recent price rises have been large and rapid, outpacing the growth in rents. In London in particular, there is a higher proportion of rental property than elsewhere, with 38pc of property in Westminster, for example, being privately rented.

Rental yields
Investment properties which are rented out receive an income from tenants. In order to calculate the gross rental yield the annual rental income is divided by the purchase price of the property (annual rent÷price) × 100 = Gross rental yield).

So, if the property was purchased for £75,000 (total) and the rent received is £450 per month the yield would be: £5400 (annual rent) ÷ £75,000 × 100 which equals an annual yield of 7.2. This is a very respectable return on your capital. Of course if you are a landlord then you will want to factor in the costs of being a landlord, such as maintenance, insurance, loan costs, empty periods etc.

Capital yields
If and when a property increases with time, this is known as capital growth. A simple example is if you buy a property for £75,000 and it increases by 25% there will be a capital appreciation of £18,750. It is a rule of thumb that low price properties might produce a high rental yield and low capital growth and vice-versa, although this is not always the case. Again, each case differs and many factors will play a part but as long as you know what you want then you should be safe with your investment.

If you are interested in averages, landlords receive £678 in rent each month as a national average. However, as always, averages don’t give the whole picture. Landlords in London and the South East collect the highest rents, with £1,079 and £816 respectively. In the west Midland rents average £678 and in East Anglia £676. Approximately 60% of this is spent on borrowing and management costs, leaving landlords with a healthy 40% profit on average.

With buy-to-let mortgage rates so cheap (at the moment) now is the time to expand your portfolio releasing equity and raising deposits to buy new properties. However, when expanding your portfolio it is important to be realistic and ensure that you invest in properties that can be sold on easily, as there may come a time when you need to get your hands on the capital that you have tied up. As with everything, property is a good investment as long as it is managed well.

Too many would-be landlords buy property and neglect it which has a negative impact on the environment and also a negative impact on the investment as a whole. A run down property will decrease in value and the possibility of renting it out for a full market rent will also diminish.

What kind of property is suitable for letting? Obviously there are a number of different markets when it comes to people who rent. There are those who are less affluent, young and single, in need of a sharing situation, but more likely to require more intensive management than older more mature (perhaps professional) people who can afford a higher rent but require more for their money. The type of property you have, its location, its condition, will very much determine the rent levels that you can charge and the clients that you will attract. The type of rent that a landlord might expect to achieve will be around ten per cent of the value of the freehold of the property, (or long leasehold in the case of flats). The eventual profit will be determined by the level of any existing mortgage and other outgoings.

If you are renting a flat it could be that it is in a mansion block or other flatted block and the service charge will need to be added to the rent. When letting a property it is necessary to consider profit after mortgage payments and likely tax bill plus other outgoings such as insurance and agents fees (if any).

Why moving house is stressful and how to manage it

A recent study found that over two thirds of adults would put moving house at the top of the stress list. The whole process of shifting from one property to property can cause stress levels to rise, catastrophically in some, and at least to some degree in others. It is not unsurprising of course. Imagine having to pack up all the items in your fridge, placing them carefully so they are not damaged in transit, then transporting them to be transferred in a different fridge elsewhere. The process of moving house is similar to that, but on a greater level. It may even involve transporting the fridge itself! The whole process of bundling your life’s possessions into little boxes and hauling them elsewhere to unpack can be a physically exhausting process.

Some people liken the whole process to military boot camp. You do physical tasks, for what seems like a menial purpose over and over again. Lift box. Put box in removals van. Lift next box. You could at least look at the positive side of things. In the whole process of moving house you could unearth a few lost items that you had forgotten about. Moving house involves excavating behind the settee, behind cupboards and may reunite you with old treasures.

Is it fair to say though, that the physical side of moving house is only the tip of the iceberg? The actual day is only one in the long run of things, a chain that starts with viewings, making offers, mortgage agreements in principle, conveyancing, exchange of deeds. Along the way there are various conversations to be had with estate agents, solicitors, the other party. All that increased workload has to be factored in the working day and fitted in somehow among the demands of work, because normal life can’t stop just because you are moving house … and in the midst of all that there is the constant thought of wondering if you made the right choice. But the most important trigger of stress could be said to be – amidst all that has been mentioned – the threat of a sale falling through. All the work and planning for moving house could be for nothing, and could be wiped out with a single phone call. Why do sales fall through? It could be your finances not adding up. It could be that the seller is in a chain and further up there has been some complication which has fallen back on you. Or it could be something as fickle as the seller trying to extract more money from you, using improving market conditions as an excuse. Or the seller may simply have decided not to move.

Of the above reasons, only one is within your control. When you commit to a purchase, your time and energies are placed in one basket, but this commitment to the buyer is not necessarily reciprocal. It is a bit like buying a lottery ticket with your last pound, and hoping the results will work in your favour. And the prolonged process of trying to live under that kind of umbrella can evoke underlying stress.

Moving house is also not just about moving properties. For some, it is also about a change of lifestyle especially if you are relocating from city to country or vice versa. A change in locations especially across cities may mean changes in relationships, your helpful neighbours in London may find it hard to make it to Bedford. Moving house may also mean moving jobs. The transitions between two different sets of lifestyles, and having to straddle between them for a few months, can similarly be difficult. And if you are moving into a property that needs renovating, there are more obstacles to life in the road ahead.

No wonder moving house causes stress. On one hand, it is the culmination of one process that started with looking for a new home. On the other hand, it is the start of a new stress process of a new lifestyle. And the actual move itself can be stressful.

But there are things you can do to alleviate the stress. You can never eliminate stress completely, but the sense that you have done all you can for the things within your control can give you some stability and peace of mind throughout the process. Get your agreement in principle in order before you make an offer. Make a list of moving companies in your area and services in the area you are moving to. And when you are looking for properties, choose an agent registered with The Property Ombudsman. This ensures that you have some avenue for redress in event of a complaint. You may not need it, but the feeling of being in control may help reduce the stress normally associated with moving.

Increasing numbers of buy to lets by cash buyers

According to Countrywide, nearly two thirds of the properties purchased by landlords were made using cash buyers. This is in contrast to the other third, which were completed using arranged mortgages. The value of properties purchased for the purpose of buy to lets totalled £31.5 billion, and of these, those made using cash payments accounted for a staggering£21.0 billion.

What can we glean from these financial statistics? The first we can deduce from the smaller percentage share is that some landlords are leveraging their existing properties in order to expand their portfolios. The one third of properties purchased are to have been based on buy to let mortgages, where perhaps an existing mortgaged property is remortgaged to release equity that goes towards a second property intended for lease. It reflects the thinking that buy to let is increasingly seen as a better investment than traditional bank investments. And while buyers are aware that a fall in house prices may result again in the future, they seem to be banking on the annual percentage gain to negate that loss.

Slightly more worryingly is the fact that two thirds of purchases were made outright with cash buyers. This highlights the fact that landlords are increasingly getting richer through the housing market, increasing their financial wealth considerably enough to afford such purchases in cash. And it points towards a worrying trend where those who have capital find it easier to accumulate even more capital, while thousands of young buyers are increasingly priced out, and have to resort to one of the following options:

Commuting to work in an area where salaries are higher and living in an area where the house prices are lower; this commute length is likely to increase as the property prices and rents increase;

Paying high rental rates and not being able to save for a deposit towards a house until significantly later in life, or not at all;

Having to make do with a lower standard of rental housing, to be able to afford to live in a particular area;

The figure of two thirds of landlord purchases by cash surpassed the three in five figure in 2011. In 2007, this figure was only two in five. In other words, the proportion of landlords buying in cash has increased by 26% in ten years, from 40% in 2007.

A favourable location for outright buy to lets is in the North of England and Scotland. While that may be good news for home owners, in that it drives house prices up as well as rentals, tellingly, the majority of purchases made are not made by people within the area, but by landlords outside of it. And this cannot be good news for the people who live in these regions. The ideal scenario for most people is to work in an area where salaries are higher, to have an income that outstrips living costs such as rentals or mortgages. But with landlords buying in Northern England and Scotland, turning it into an investment hotspot, the people in the area are trapped in a cycle of comparatively lower salaries and high prices.

Nearly four out of every five homes in the North East of England were bought by outright cash buyers, an astounding figure.

The trend was however reversed in the capital. It can be surmised that property prices in London were too high for many outright cash purchases. Landlords buying in London were the most likely to use a mortgage and London was the only region where statistically, two out of five purchases were cash-backed, well under the national average. Of course, this suggests that in some areas the proportion of outright cash buyers was even higher.

What inferences can we draw from the data? The first is that investment properties are on the rise. For estate agents, a registration with The Ombudsman Property Service is a sign that you work within a framework of established rules and regulations, which may be the distinguishing factor in determining if landlords choose to entrust their properties to you to manage or not.

Young professionals seeking to rent a property should choose one managed by a landlord or agent signed up to The Ombudsman Property Service. This means they are obliged to work to professional standards. You may get the offer of a cheaper rental property from a private landlord, on fairly informal terms, but accepting this may mean you have no means of redress when disputes arise.

The news that rental costs are increasing are not good. What can young professionals do in order to get on the property ladder? No one wants to be committed to a lifetime of renting, if they could help it, because while the ability to move from place to place and lead a bohemian lifestyle may seem idyllic in your twenties, having no roof over your head when you’re in your sixties is hardly a thrilling nomadic existence. And when you can see it coming from the vantage point of your forties and fifties, these thoughts will continually prey on your mind.

A recent report suggested young professionals could give up certain luxuries in order to accumulate enough capital to form a substantial deposit. The deposit for a London property is approaching £80,000 or £90,000. Taking the average annual salary of £26,000, minus rent, the average person would be in their forties by the time they got a foothold on the ladder. The report suggests that a foothold might be more quickly established if nights out, takeaway sandwiches and coffees were forgone, among other expensive luxuries like cigarettes. But it would be difficult to live a life that seems devoid of any entertainment, even though it may be a sacrifice the first time buyer may have to make.

The difficulty with reconciling what one wants from life with what one can afford is one of the difficulties we all have to overcome. Young people have aspirations of how they would like their lives to turn out, and aspirations of lifestyle that they have to manage. But perhaps the notion of doing without luxuries for a few years is a step too far, and those that have their eyes on the gulf between house prices and salaries have decided they cannot bridge the gap, or commit to closing the gap, and have decided to enjoy life and all its luxuries while they can.

The divergence between salaries and house prices has also inadvertently fuelled another trend. This trend is the currency of hope. Young professionals, unfortunately, are increasingly seeking an outlying factor to help them expand their savings enough to meet their dream property. An outlier is an event that lies outside traditional empirical data, what might call a one-off that defies evidence. An example of an outlier might be a lottery windfall. There is no past evidence that points towards a future win, but when it happens suddenly a sudden restructuring of the status quo results. Another outlier is perhaps an inheritance; a sudden unexpected sum of money would help make up the gap for a deposit. First time buyers are relying also on parental help. But there is also an increasing number of young professionals who are turning towards reality television, singing competitions and all kinds of sudden fame in the hope that it would suddenly lift them out of the existing situation, and provide some additional financial boost into their dream one.

Are others relying on property as their hope?