Sadly, in the UK at this time there are a lot of investors who have lost a lot of their hard-earned cash to unscrupulous property sourcing agents. This will not change until property investors understand the danger areas that they need to focus on and what information is key to keeping them safe.
There are several areas where investors often fail to focus their attention on and/or fail to carry out sufficient or sometimes no due diligence at all.
Let’s take a look at each area of concern.
Up-Front Fees
One of the most reported complaints by investors working with sourcing agents are ‘Up-Front’ Fees. Most sourcing agents take an up-front fee(s), which can also be called a ‘registration fee’, ‘reservation fee’ or ‘deposit.’ They can range from a few hundred pounds to thousands of pounds.
As as investor you MUST understand the following before agreeing to working with a sourcing agent:
- What fee is taken up front?
- How much is taken?
- When is it taken?
- Is any fee taken up-front refundable?
We have heard from investors who have lost anything from £3,000.00 to over £40,000.00, all taken as up-front fees to reserve a deal or as a deposit!
If a fee is ‘refundable’ then it MUST be held in a ‘client account’ or similar with appropriate protection. Ensure that you understand how a sourcing agent works, if you pay upfront and if you can get the cash back if something goes wrong.
Agreement or Contract
A Terms of Business Agreement or similar contract is essential for you as an investor to understand, what is expected of you and when and what you can expect of the sourcing agent that you are considering working with.
You can’t complain that a sourcers service has been poor and didn’t meet your expectations if there isn’t one in place.
A contract between you and the sourcing agent is essential, make sure that they have one and you agree with everything in it. READ the document before signing!
Compliance
Whilst you may say that you don’t care if a sourcing agent is compliant or not as long as the deal works for you, that’s fine until something goes wrong!
Compliance isn’t just about insurance and some registrations, it about how the sourcing agent operates day in day out and client to client.
Insurance
Just like compliance you may not initially consider it to be important to check, until something goes wrong.
Sourcing agents should have a bespoke insurance policy for Sourcing, if the policy states Estate Agent then it may not cover should something go wrong as the insurance underwriters consider sourcers to be a much higher risk that high street estate agents.
Either Redress Scheme – The Property Ombudsman or Property Redress Scheme currently approved in the UK at this time can make a maximum award of up to £25,000.00. Small claims court in UK has a maximum claim of £10,000.
If things go really wrong then it may be the insurance in place that provides more protection for you, dependent on how much you are possibly losing.
Knowledge
Property sourcing agents often come into the sourcing and deal packaging sector with little or no knowledge of property investment.
To try to make as much money as possible as quickly as possible, they often try to cover the whole UK and every possible investment strategy currently known!
As an investor you really need to make sure that a sourcing agent understands the strategy that you want to invest in and can highlight the essential information needed for you the investor to make an informed decision as to whether the deal works for you.
Due Diligence
Unless you want to potentially lose a lot of cash, carrying out due diligence on any sourcing agents is. Absolutely essential.
We have often stated that a lot of investors spend more time checking out the next car they will buy than checking out a sourcing agent or deal packager before working with them.
Should something go wrong and you want to escalate a complaint to a Redress Scheme, then NOT having completed due diligence that would have highlighted a potential issue would go against you when they review the complaint.
Whether you consider compliance to be essential to you as an investor working with a sourcing agent or not, there is an old saying that still rings true:
‘You never need it, until you really need it’!
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