Property Sourcing Agents and Their Deposits: A Quick Guide
Working with property sourcing agents is a great way to grow your portfolio quickly but you have to pay for their services. Today we look at the kind of deposits will need to put down to secure a deal, at what stage in the process you might be expected to pay and at how secure they generally are across the industry.
What is a Property Sourcing Agent?
A property sourcing agent is someone who makes a living putting together property deals, which they then sell to property investors. The role of a property sourcer is to act as a middleman between the buyer and the seller, smoothing the deal out, making it better for both parties.
Every property sourcing agent or sourcing company will have their own contracts and their own unique terms and conditions.
But, there are some industry standards and guidelines. And, if you understand those, then you will be better placed when it comes to working out whether or not a specific property sourcing agent is going to be a good fit for you and your business.
Of course, one of the most important elements is how the agent wants to structure their payment and whether they need a deposit to secure a given property deal.
And this is what I'm going to look at today; whether you should be paying an initial deposit, how much that deposit should be and how it needs to be protected or guaranteed.
Should I pay a Deposit to a Property Sourcing Agent?
The first thing to look at is whether or not you should be paying a property sourcer a deposit at all.
The answer is here is yes, this is fairly standard practice.
Property sourcing companies will ask for a deposit as it is their only way of guaranteeing some sort of certainty that the buyer is going to go ahead with a given project.
And they need a degree of certainty, not only to protect themselves but also so that they can pass that certainty on to the seller.
A property sourcing agent is a middle man between a buyer and a seller and, as such, they need to be comfortable that both parties are in alignment and that the sale is likely to progress.
How Much Should the Deposit Be?
The deposit required by a property sourcing company should not be excessive. The industry standard is about £500 though some companies might ask for more, maybe up to £1000.
Securing an Off-Plan Property
For instance, you might be required to pay a deposit to the sourcing agent when you are securing a property. This property might be off-plan, where a deposit would be required to lock in the deal. So, you would need to pay a deposit when you put an offer in on the property and the sales process starts.
A Large Refurbishment Project
The situation could be very different, however, if you are dealing with a large refurbishment project.
In this case, you might exchange, initially, and complete later down the line when certain, terms, conditions or milestones have been met. You might, therefore, pay your initial deposit when you exchange, rather than at the point of putting in an offer.
To Take a Property off the Market
There might be other occasions when the seller, or investment company, might request that a deposit is paid simply to take a property off the market.
So, for instance, you, as a property investor, may want to spend some time doing your due diligence; going through planning documents or looking at feasibility studies.
If you know you are going to have to spend some time researching a property, then you might have to pay a deposit for the vendor to take it off the market while you go through that process.
How will the Deposit be Protected?
Again, every property sourcer or property sourcing agency is going to be different and your deposit will be treated differently depending on the nature of the deal. The important thing is that you go into every situation with your eyes open and fully understand the conditions attached to any deposit that you end up paying.
Some companies will require the deposit to be paid directly to them and you, the investor, will forfeit the payment if, in the end, you don't end up purchasing the property.
Some companies use escrow accounts. This is where a deposit is held by a third party and usually means that should the seller pull out of the deal, the deposit will be returned to you in full.
But, if it is you that pulls out for any reason other than legal issues or problems with the property itself, then you, most likely, would forfeit the deposit.
Again, understanding the terms and conditions of any deposit payment is very important.
In terms of protection and security, it is also important to know how and where the deposit is being stored.
If the deposit isn't safe, then your chances of getting it back, if it owed to you, are decreased.
If the deposit is held by a third party like an escrow company or a solicitor then it is probably safe. If it is in the personal bank account of a freelance property sourcing agent then it might be less safe.
Join Our FREE Property Training
Thank you for watching this video. If you liked this content then why not join our free online property training course?
In there we cover a range of different property strategies to help you get started on building a long-term property portfolio or creating a cash-flowing property business.
We also look at ways to increase your return on investment with any of the properties you may be considering and we also have a couple of cheat sheets and downloadable documents.