When it comes to property sourcing, clarity and compliance should always be at the forefront of your business practices. An increasing number of property sourcers and agents are leaning on Non-Disclosure Agreements (NDAs) as their primary form of contract with investors. However, relying on NDAs could do more harm than good. NDAs simply will not protect your business if an investor raises a complaint or disputes your fees.
Why? NDAs are not designed for property sourcing transactions — and unfortunately, in many cases, they’re “not worth the paper they’re written on”.
Here’s why NDAs fall short and what you should use instead to protect your property sourcing business and foster stronger relationships with your investors.
Why NDAs Are Ineffective in Property Sourcing
- They Offer No Real Protection for Your Fees
NDAs are primarily used to protect confidential information. While this is important, they don’t address critical details such as your fees, fee structure, or the agreed services you are providing. If an investor disputes your charges, an NDA will likely not stand up as sufficient in the eyes of a property redress scheme like The Property Ombudsman (TPO) or The Property Redress Scheme (PRS).
- They Fail to Outline Key Agreement Details
Property sourcing and deal packaging are professional services that involve both rights and responsibilities on each side of the agreement. An NDA does not contain provisions for this. It does not spell out the obligations of either party, nor does it provide a roadmap for resolving potential disputes.
- They Could Leave You Financially Exposed
Through our work at NAPSA, we’ve seen agents losing cases and being ordered to pay back significant amounts of money. Recent trends indicate that sourcers are often required to refund their entire sourcing fees — typically between £2,000 and £5,000 — due to unclear or weak contracts. With NDAs offering little in terms of robust legal protection, your business could face the brunt of these financial repercussions.
The Solution? Use a Terms of Business Contract
If NDAs aren’t the answer, what should you use instead? This is where a Terms of Business contract comes into play. A well-drafted Terms of Business contract is crucial to protecting your sourcing business, ensuring compliance, and maintaining transparent relationships with investors.
Key Features of a Strong Terms of Business Contract (and what we look for at NAPSA)
Your Terms of Business should:
- Clearly Outline Fees: State your sourcing fee, payment terms, and any additional charges upfront. Transparency here is critical to avoid disputes later.
- Include a Fee Structure: Break down how your fees are calculated and what services your investor will receive in return.
- Define the Scope of Work: Clearly detail the exact services you are providing to the investor, whether it’s sourcing, deal packaging, or other activities.
- Address Dispute Resolution: Lay out a plan for resolving disagreements to avoid costly misunderstandings or complaints.
- Meet Compliance Standards: Ensure the contract complies with property law and regulations to build trust with both investors and redress schemes.
By using a fully comprehensive Terms of Business contract (we recommend it contains no less than 15 pages) you’ll not only protect your business but also foster trust and professionalism with your clients.
The Terms of Business Agreement is absolutely the most important document that you will have in your business and in order for it to do it’s job properly MUST be fit for purpose.
The Risks of Weak Contracts
Property sourcing is serious business, and missteps can cost you dearly. Through our collaboration with TPO and PRS, we’ve seen many sourcing agents lose disputes because their contracts weren’t clear enough. Some courses still provide sourcing agents with NDA templates, which are entirely inappropriate for this line of work.
If you’re relying on one of these outdated templates from a training course, it’s time to reassess your contracts. Investors have increasingly high standards when it comes to contracts, and so do redress schemes. Don’t leave your business exposed — adapt and strengthen your agreements now.
Property Investors: What You Need to Know
If you’re a property or land investor, you also have a responsibility to ensure that contracts are clear and transparent. Before signing anything, make sure you fully understand and agree with the terms outlined.
A good sourcing agent or deal packager will take the time to walk you through the contract, answering any questions you may have to create an open and trusting business relationship.
At NAPSA, we take contracts and their content very seriously. We check all of our members’ contracts to ensure they meet the required standards, protecting both sourcers and investors alike.
Empower Your Business with Clarity and Compliance
NDAs might seem like a quick fix, but in property sourcing, they are little more than a placeholder that fails to provide real protection or clarity. To truly safeguard your business and establish trust with your investors, invest in a robust Terms of Business contract. This small change could make a significant difference when challenges arise.
Unsure whether your current contracts meet industry standards? The good news is you no longer need to spend thousands to get a quality Terms of Business agreement created.
Through NAPSA, our training partner Professional Sourcing Compliance (PSC) has taken the time and and money over 13 years to create bespoke documents utilised for an actual sourcing business and checked by Forbes Commercial Contracts – at a cost of in the region of £10,000. These legally required documents are now ready for sourcing agents to download and adapt themselves.
You can purchase the Legally Required Document Pack, which includes the 18-page Terms of Business Agreement (plus video training and guidance on each) for £795 / NAPSA Members get 25% off this price.
Or if you’re looking for how all legally required documents sit within your day to day sourcing process, we would recommend purchasing the Essentials Sourcing Bundle for £952 (20% discount from normal £1,190 price).
This course covers how to source professionally, successfully and compliantly day to day – as well as how the documents fit within the full sourcing process.
