How to Find The Right Property Sourcing Agent
Finding the right property sourcing company is one of the most important decisions you’ll ever make. Learn how to do it right!
In an industry where anyone who has been to a “weekend masterclass” can suddenly claim to be a property sourcer, it’s vital to take the time to understand what a property sourcing company can do for you and how to protect yourself.
We take a look at what a property sourcing company should have in place and what value they should be providing you as an Investor.
Property Sourcing Compliance
This is the first thing you should be checking for and the biggest red flag if it’s not in place.
Without exception, a property sourcing company should have the following as a bare minimum;
Property Redress Scheme
All property agents and professionals carrying out Estate Agency, Lettings and Property Management work in the property industry have a legal responsibility to join an authorised redress scheme – Property Sourcing is no exception!
In Scotland, the go-to schemes are The PRS (Property Redress Scheme) and TPO Scotland (The Property Ombudsman Scotland). Check out the links to find out how to become a member and what will be expected of you as a property professional.
As an Investor, these schemes offer you peace of mind that the property sourcing company should be operating in the correct manner but also an avenue for any dispute resolution if required.
Information Commissioner’s Office Registration
The ICO is the UK’s independent authority set up to uphold information rights in the public interest, promoting openness by public bodies and data privacy for individuals. Scotland has its own Information Commissioner who regulates the Freedom for Information (Scotland) Act which covers Scottish public authorities. Find out more about the ICO (Scotland) here.
As an investor, you want to be sure that your data is being handled correctly. It belongs to you so it’s important your data is used only in ways you would reasonably expect, and that it stays safe. Data protection law makes sure everyone’s data is used properly and legally.
Professional Indemnity Insurance
As part of the Code of Practice, any property professional needs to make sure that they have professional indemnity insurance.
If you as a client are not happy with the service provided or you feel the property sourcing company made a mistake which cost you money, you might want to pursue them for compensation.
The Code requires a property sourcing company to get professional indemnity insurance. This helps protect them from claims by dissatisfied clients by covering the cost of compensation for loss or damage caused by your business.
I can’t stress enough how important this is for investors. There is, of course, an element of risk in working with a property sourcing company and if they are showing that they have taken action to alleviate this risk, it’s a huge weight off your shoulders.
HMRC AML Registration
The HMRC website clearly states the following;
“You must register with HMRC if your business carries out any work defined as estate agent business in accordance with section 1 of the Estate Agents Act 1979 if you act:
- on instructions from a customer who wants to buy, sell or let an interest in land, in the UK or abroad, and introduce your customer to a third party who wants to buy, sell or let an interest in land.
- after such an introduction to secure the sale or purchase of the interest in land”
It’s a criminal offence to trade as an estate agency business without being registered or after your registration is cancelled with HMRC for money laundering supervision.
As an investor, this will mean that the property sourcing company will need to carry out similar checks and investigations that a Highstreet Estate Agent or Property Solicitor needs to do. If they ask you for ID and proof of address, this is clearly showing they are complying with HMRC’s processes and procedures. Again, this is good evidence of a trusted professional!
A final and very important point on compliance is that being a property investor doesn’t mean you don’t need to be compliant if you are also sourcing. I hear a lot about investors ‘selling on deals’ that don’t suit their requirements and these are often the very same people who complain about the standard and lack of professionalism in property sourcing – YOU ARE ALSO PART OF THE PROBLEM!
Understand What Makes a Property Sourcing Agent
So, you have identified a potential property sourcing company that you are interested in working with and satisfied yourself that they are following guidelines on compliance. What can you now expect from them?
Are they specialising in the type of investment opportunities that you are looking for?
Most property sourcing companies will have a main focus which could be a number of things such as;
- Specifically commercial or residential properties
- A focus on a particular city or region
- A single strategy such as Rent-to-SA or Buy-to-Let
- High-value prime property
- Portfolio specialists
Make sure that if they do have a particular focus, this is in line with the kind of investments you will be interested in buying.
Are they really providing value?
What I mean by this is that are they introducing you to purchase opportunities that are not readily available. Some property sourcing agents try to secure properties from the open market which is fine, as long as they have been negotiated well and removed from the market. Always check to make sure.
Aslo, be careful you don’t buy into false or over-inflated information. The property sourcing company is obviously trying to sell the deal so they will by nature, show you the best points about it. Keep an eye out for the following red flags that could make or break the purchase;
- Very low refurbishment cost estimates
- Cashflow figures using very low interest rate examples
- Overinflated market or end values
- “Cash buyers only” – ask why?
When presented with information, remember to adjust these figures for your unique situation. You will have your own refurbishment costs, legal fees, mortgage fees, and interest rates available. Also, depending on what trades, surveyors, lettings agents and estate agents that you use; flip sales prices, rental income and gross development values will differ.
This isn’t necessarily the sourcer lying about figures but you need to personalise them and carry out your own due diligence.
Do you know what a Property Sourcing Agent should provide?
Lastly, unless they are offering a full project management or refurbishment service, the role of the property sourcing company is to introduce you to and secure you a property purchase opportunity. Whilst a good sourcer will continue to provide support and communicate frequently throughout the conveyancing process, it is NOT their responsibility to ensure the sale completes. If you are unable to complete due to funding, stall the deal for long enough for the seller to withdraw or decide to no longer proceed due to no fault of the agent, the sourcing company has still carried out their job and should be paid accordingly.
The property sourcing community in Scotland is very small. If you are securing deals without being in a position to purchase and think you can repeatedly withdraw and waste both sourcing agents and sellers time, you will quickly build a poor reputation and find that agents no longer want to work with you.
So, what have we learnt about property sourcing agents?
- Ensure the property sourcing company is fully compliant.
- Make sure they are sufficiently insured.
- Investors should also be compliant before ‘selling on deals’.
- Know what you are looking for and work with an appropriate sourcer.
- Make sure they are providing genuine value.
- Don’t be caught out by inflated figures.
- Carry out your own due diligence on any opportunity presented to you.
- A sourcing company is not there to ensure completion, that is your responsibility.
Working With Us
To find out more about working with us to buy a property portfolio please visit our ‘Buy My Portfolio’ page on our website here.
We would also love to chat with you about your portfolio purchasing requirements so Book A Call and we can discuss how we can help you. Likewise, if you are a property sourcing company and are interested in working together, get in touch!