The Key Players: Buyer vs. Seller
When engaging in property sourcing, the sourcing agent's fee can be paid by either the buyer (the investor) or the seller. The structure of the deal determines who is responsible for the payment. While both arrangements are possible, one is far more common and recommended for maintaining compliance and transparency.
When the Buyer Pays the Fee
In the vast majority of property sourcing transactions, the buyer pays the sourcing agent's fee. This is the standard and most straightforward model. The investor agrees to a fee in exchange for the sourcing agent finding and securing a suitable property deal that meets their criteria.
This arrangement aligns the interests of the investor and the agent. The agent is motivated to find a high-quality deal to ensure their client is satisfied and the transaction proceeds to completion, at which point their fee is paid.
When the Seller Pays the Fee
It is possible to structure a deal where the seller effectively pays the sourcing agent. This typically occurs in specific situations, such as off-market land development deals.
In this scenario, the sourcing agent agrees on a net price with the seller. The agent then adds their sourcing fee on top of this price, which is paid by the buyer. The final purchase price includes the seller's desired amount and the agent's fee. When the transaction completes, the funds are distributed accordingly.
However, this method, sometimes associated with "back-to-back" deals, can attract scrutiny from HMRC. It is considered a higher-risk model for potential money laundering, and regulations have become much stricter in recent years. For most residential property deal sourcing, this is not the recommended approach.
Securing Your Payment: Best Practices for Sourcing Agents
The most crucial moment for a sourcing agent is securing their payment. Simply invoicing an investor after a deal completes is a high-risk strategy. An investor could delay payment or disappear entirely, leaving the agent with no recourse after weeks or months of work.
The most secure and professional method is to have the fee paid directly by the buyer's solicitor upon completion.
How to Structure Payment Through a Solicitor
To ensure you are paid correctly and on time, follow this structured process:
- Introduce Yourself: At the beginning of your relationship, ensure your buyer introduces you to their solicitor as their designated sourcing agent. This establishes your role officially from the outset.
- Formalise Agreements: Have the buyer sign a comprehensive Terms of Business agreement. When they decide to proceed with a specific opportunity, they must also sign a deal agreement form for that property.
- Inform the Solicitor: Once the deal agreement is signed, you must formally notify the buyer's solicitor. Forward the signed agreements, clearly stating the terms of payment and your fee. It is vital to copy the buyer into this communication for full transparency.
- Funds on Account: The solicitor will then instruct the buyer on the total amount of money required to proceed. This figure includes the property purchase price, stamp duty, legal fees, search costs, and your sourcing fee.
- Completion and Payment: The solicitor will not proceed to exchange and completion unless all required funds are in their client account. This guarantees that your fee is available before the property legally changes hands. Upon completion, the solicitor will pay you directly as part of the disbursements.
This process protects the sourcing agent by integrating their fee into the legal transaction itself. It mirrors how traditional estate agents are paid through the seller's solicitor, providing a professional and secure framework for all parties.
Upfront Fees: Deductible vs. Refundable
Some property sourcers choose to charge a fee upfront before a deal is finalised. It is important to understand the two main types of upfront fees and their legal implications.
- Refundable Upfront Fee: If you take a fee and state that it is "refundable," this money must be held in a designated client account. These accounts are currently very difficult for sourcing agents to obtain.
- Deductible Upfront Fee: An alternative is to charge a fee that is "deductible" from the final sourcing fee upon completion. This payment does not need to be held in a client account and acts as a commitment from the investor.
Charging a deductible fee can be an effective way to ensure an investor is serious about purchasing a property, covering some initial administrative costs and securing commitment.
Top Tips For Property Investors and Sourcing Agents
For a successful property sourcing relationship, clarity and professionalism are paramount.
For Investors:
Understand that a professional sourcing agent will have a clear, structured payment process. Expect to be introduced to their solicitor and to have funds for their fee ready as part of the overall transaction costs. This protects you and ensures a transparent deal.
If you want to learn more about deal sourcing fees, see our Investor Guide to Sourcer Fees. Interested in building your property portfolio faster and more efficiently? Explore our insights on property investment strategies for investors and sourcers.
For Sourcing Agents:
Do not leave payment to chance. By embedding your fee within the legal conveyancing process, you secure your income and operate with the highest level of professionalism. Always use clear, legally sound agreements to protect your business.
Looking to ensure your sourcing business is fully compliant? Take a look at our exclusive training and membership packages for guidance and professional development. View our property sourcing payment packages.