Disclaimer: This post is not meant as legal advice. I am not a legal professional. It’s just to point you in the right direction. Always do your own research and speak to a legal professional when it comes to compliance and regulation.
This post is a quick guide on how to become a compliant property deal sourcer in the UK.
Being compliant will not only protect you but also your clients. Trust me when I say protecting your clients will be good for business.
Firstly you need to know if there are regulations that property sourcers need to follow.
Are Property Sourcing Agents Regulated In The UK?
Yes, property sourcing agents are regulated in the UK with most of the regulation coming from The Estate Agents Act 1979. The rest of the regulation tends to come from just general laws around businesses in the UK.
Even though you don’t call yourself an estate agent, as a deal sourcer you are acting as a ‘buyer’s agent’.
This is different to a standard estate agent where the estate agent is the seller’s agent.
This means that property sourcing agents basically fall under the same regulation as estate agents even though they technically fulfil a different purpose.
There is also some general information you need to be aware of that is applicable to all types of businesses in the UK.
I noticed that a lot of guides online missed out some important topics, but I’ve tried to include everything I could find that would be relevant.
I’ve made the list below of all the things you should consider for property sourcing compliance:
- Anti Money Laundering
- GDPR (General Data Protection Regulation) And The ICO
- Professional Indemnity Insurance (PI)
- Property Redress Schemes
- Complaints Procedures
- Register with HMRC
- Client Accounts
- Contracts e.g. Sourcing Agreements
- Employer’s Liability Insurance
- Public Liability Insurance
- FCA Rules Around Financial / Investment Advice
Below I go into more detail on each of these topics.
Anti Money Laundering (AML)
If you have done a deal with a client but the client has been using proceeds from illegal activity, then you could get in trouble if you are not registered or following the correct procedures.
When you follow the anti-money laundering rules, you ensure that there is always proof of the source of funds for any deal.
It is mandatory for all ‘estate agency businesses’ and you can see how the government defines an estate agency business.
You can register through the gov.uk website and there is a registration guide which I’ve linked below.
If you want to see the guidance in more detail then there is a guide published by HMRC at the link below:
GDPR (General Data Protection Regulation) And The ICO
To comply with GDPR (General Data Protection Regulation), you’ll need to register with the ICO (Information Commissioner’s Office).
If you’re an estate agent of any kind, which includes property sourcing agents, you need to register with the ICO.
This is because you will be handling personal data, whether that’s the landlord, the investor, the tenants or anyone else.
It starts at about £40 per year and you can find more information on the ICO website which is linked below.
Professional Indemnity Insurance (PI)
You should be getting professional indemnity insurance as a deal sourcer before you start interacting with clients or potential clients.
If a client claims against you because they feel like you have breached their contract or have been negligent in your duties then professional indemnity insurance can protect you.
It can cover any costs related to legal fees and other losses incurred.
The level of coverage you need depends on you and your business, but there are some minimum levels of coverage that you need.
As an example, the TPO (The Property Ombudsman) requires that your limit of indemnity (the amount you can claim) is no less than £100,000. It also requires that the excess is no more than £1,000.
If your client plans to sue you because they feel like you’ve misrepresented something then you will have some sort of protection.
On the other hand, if your client tries to retrieve money back from you, they have protection because you should be signed up to the correct schemes and have the right level of insurance.
The fact that the client is protected is BETTER for your business.
If a client knows that you are doing everything by the book and that they can be protected if something goes wrong, they will be much more likely to hire you for your services.
Property Redress Schemes
As a property deal sourcer, you must be registered with one of the property redress schemes in the UK. This is compulsory by law and there are two you can choose from.
At the time of writing, you can either join the TPO (The Property Ombudsman) or the PRS (The Property Redress Scheme). I’ve linked to both of them below.
The redress schemes work as a complaint escalation process.
If a client makes a complaint and they are not satisfied with how the deal sourcer has dealt with this complaint, then the client can raise this to the property redress scheme that the sourcing agent is a member of.
The cost of membership varies by scheme and the current prices for the redress schemes can be found online:
Complaints Procedures
You need to have an in-house complaints procedure if you are part of a property redress scheme.
Of course, since being part of a property redress scheme is mandatory, having an in-house complaints procedure is also mandatory.
These procedures should lay out how the client can make a complaint as well as timelines they can expect to go through the whole process and what kind of resolutions may occur.
Remember that the property redress scheme that you sign up for is only for escalations of complaints.
This means you and your client will have to go through an in-house complaints procedure before going to the property redress scheme in question.
Register with HMRC
Just like any other business, you need to register with HMRC to undertake your business activities.
Remember that “nothing is certain except death and taxes”.
You can use guidance from the following link:
If you are operating as a limited company then you can register online yourself or you can use a service that does this for you.
If you are operating as a limited company, you’ll need the correct sic code.
At the time of writing the correct sic code for you as a deal sourcer is most likely the following:
- Sic code 68310
- Description: Real Estate Agencies
You should double-check this, especially if you are carrying out other duties within your company in addition to deal sourcing.
Whether you are a sole trader, limited company or partnership depends largely on how you want to structure your taxes so it would be good to speak to an accountant.
If you are handling client money, then you need to be registered with HMRC and have client money protection.
Client Accounts
As you are acting as an ‘estate agent’ for the buyer, you will need a client account to handle any of your client’s money.
A client account is a bank account for the purpose of holding money for a client before it is transferred to your own bank account.
Deposit, reservation fees, and any other money you are holding for the client will need to be ring-fenced.
Putting this money in a client account ensures that the client’s money is separate from your business.
You should also get client account insurance to protect the money in this account.
Contracts e.g. Sourcing Agreements
There are different names for these but you should make sure that you are protected.
You can call it your terms of business, property sourcing agreement, property finders agreement, sourcing fee agreement or something similar.
Whatever you call your contract, these agreements will outline the processes and timelines for how you will interact with the client before, during and after a deal.
For example, you should describe any confidentiality agreements regarding any deals you present.
It should also outline when and how much money should be transferred between parties at different parts of the process.
Any refund policies should be included in this too as there are times when people might pull out of deals and things fall through.
By having the right contracts in place, you and your clients will both know what to expect throughout the whole process and any disagreements are easier to handle as everything is in black and white.
To draft these contracts, it’s recommended that you speak to a legal professional.
If you need help getting started, you could look at existing property sourcing businesses and look at their terms to get an idea of what you would need to include in your own contracts.
Of course, it is still recommended that you speak to a legal professional to make sure that everything is done right.
Employers Liability Insurance
If the business is going to have any employees then you need to have this by law. This is for any business in the UK.
Public Liability Insurance
Whilst this isn’t mandatory, it can be useful if a member of the public is injured or has suffered any losses due to your business.
Basically, this is recommended if your business will have any kind of contact with any third parties.
Third parties can include members of the public, clients or contractors or basically anybody else.
FCA Rules Around Financial / Investment Advice
As a property deal sourcer, be aware that you should not be giving any sort of financial or investment advice to your clients if you are not FCA-regulated.
As a property sourcing agent, you are simply finding deals based on what your investor’s criteria are, the client can then decide whether they want to go ahead with a deal or not.
You should not be saying anything along the lines of “If I were you I would do x” because this would put you into the realm of giving investment or financial advice.
The investor should be deciding their investment decisions by themselves.
Summary
Property sourcing compliance can be hard to navigate, especially when you have plenty of people online giving you different advice.
Hopefully, by now you should know where to go and what to look into to become a compliant property deal sourcer.
This page will be updated wherever possible, but if there’s anything that’s been missed then please get in touch and we can add it to the list.
Remember that this post is just to point you in the right direction, make sure you speak to a legal professional and do your own due diligence as this post is not legal advice.