Avoid Costly Mistakes With This Property Deal Sourcing Compliance Guide

If you’re looking for ways to earn in the UK property market, becoming a deal sourcer may be worth considering.

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Deal sourcing and packaging involves finding and securing investment opportunities and packaging them for suitable investors for a fee. It can be a great, low-capital entry into the market without having to purchase properties yourself.

Common properties sourced in this manner include Buy-To-Let Deals, refurbishment projects, rent-to-rent arrangements, and below-market-value properties.

However, you can’t simply dive in and start looking and charging for deals. Sourcing and packaging are considered “estate agency work” in the Estate Agents Act 1979, so there are compliance rules you ought to follow.

As the industry grows steadily, the HMRC and other regulatory bodies have stressed the need for compliance to protect consumers, particularly from money laundering.

Key Takeaways

– How Deal Sourcing Works

– Why Compliance in Deal Sourcing Matters (and How to Comply)

– Find Expert Guidance on Deal Sourcing

How Deal Sourcing Works

A sourcer acts as the middleman between the seller and the buyer. But unlike an estate agent, who primarily works for the vendor, a deal sourcer represents the investor.

Where estate agents aim to secure the highest prices for their commission, deal sourcers look for below-market-value (BMV) properties with high ROI potential. Many sourcers also charge a flat fee instead of a percentage rate.

Experienced deal sources earn anywhere from £3,000 to £10,000 for a compliant deal.

Besides finding profitable investments for their clients, other key responsibilities of a deal sourcer include:

Negotiating deals: A deal sourcer directly engages with the seller to secure deals that meet the investor’s needs.
Research and due diligence: This involves market analysis, such as identifying good locations, property prices, and calculating potential ROI for the package.
Facilitate transactions: In addition to motivated sellers, sourcers support buyers by linking them to brokers, surveyors, and solicitors.

Many property buyers use and prefer deal sourcers, especially when they don’t have the time, knowledge, or network to find good investment opportunities.

For those new to the market, working with a compliant sourcer is a great way to avoid costly pitfalls and maximise their returns through their expertise.

Experienced sourcing agents are also likely to have access to unlisted and discounted properties.

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Why Compliance in Deal Sourcing Matters (and How to Comply)

When dealing with the buying and selling of property, staying on the right side of the law and getting yourself compliant is always the best move.

There are serious legal responsibilities that come from being a deal sourcer.

Ignoring compliance can reduce credibility, lead to HMRC penalties, or, in serious cases, even criminal investigations. To avoid these issues, you want to register with HMRC for AML and join redress schemes, among others.

Here are the main compliance steps you should follow.

AML Registration

Compliance with the UK’s anti-money laundering (AML) regulations is one of the most important obligations of property sourcing agents.

This is to protect your services from being used for illegal activities.

Under the Money Laundering Regulations 2017, any businesses carrying out anything considered an “estate agency work,” such as in deal sourcing, must register with the HMRC for AML supervision.

HMRC’s enforcement of this rule has increased in recent years, following rising reports of agencies failing to comply with anti-money laundering policies.

With the AML, deal sourcers are generally expected to conduct customer due diligence checks or CDDs to confirm buyer legitimacy and that the money used comes from legal sources.

You may also be required to carry out EDDs or enhanced due diligence for high-risk, overseas investors and politically affiliated persons.

The Property Ombudsman and Property Redress Schemes

It’s a good idea for a sourcing agent to be a member of The Property Ombudsman (TPO) or a property redress scheme (PRS).

The TPO is a government-approved dispute-resolution body for deal sourcers, buyers, sellers, landlords, and tenants. The organisation serves as an alternative to court action for resolving client complaints.

Using the TPO service is free, fair, and supported by over 30,000 members.

A property redress scheme (PRS) is the other government-backed scheme for helping parties address disputes and reach a fair outcome.

Estate agents, as well as property sourcers intermediating in the buying and selling of properties, are particularly mandated to join a PRS.

Professional Indemnity Insurance

As in any business, insurance can make a world of difference in deal sourcing.

For deal sourcers, a professional indemnity (PI) insurance can be useful in cases where a client or investor claims financial damage and sues.

This can happen in many situations, such as when a sourcing agent withholds crucial property information, presents inaccurate financial figures, gives poor marketing advice, or neglects to explain legal risks.

Resolving disputes can be expensive, even if the case doesn’t reach a court. A PI insurance covers defence costs and damages.

Consumer Data Protection

As part of GDPR and the Data Protection Act 2018, businesses and traders who process personal consumer information (names, addresses, phone numbers, etc.) must comply with existing laws.

Compliance means registering your business activities with the Information Commissioner’s Office (ICO). Failure to register can be considered a criminal offence.

Data protection fees also apply. Typical fees are £52 or £78 for non-profit organisations and small and medium-sized businesses (SMEs). Non-payment can lead to fines of £400 up to £4,000.

Estate and sourcer agents are expected to collect only pertinent details from clients. They’re also required to store sensitive information securely and explain how the information will be used.

Good data protection practices can include installing password-protected systems, securing cloud storage, and implementing clear privacy policies.

Find Expert Guidance on Deal Sourcing

For a deal sourcer, compliance is not optional. It protects the parties involved and prevents fraudulent activities, such as money laundering.

Buyers are more likely to work with someone who complies with and follows UK regulations that protect their interests. Not to mention, credibility is crucial to building a reliable network of sellers and investors.

For those considering pursuing deal sourcing and packaging, getting the right guidance and training from a leading property education company can help you navigate the complex UK market. Successful deal packagers at Assets For Life usually start with our midweek Property Deal Packaging Webinar or weekend Property Deal Packaging Summit. Start your journey today whether you are a complete beginner or looking to scale!