PROPERTY SOURCING PROFITS- Part 7: THE ESSENTIAL BORING BIT
THE BORING BIT
This section we have aptly named ‘The Boring Bit’ because, well, that’s unfortunately what It is. However, this section also includes some of the most important information and is an absolute must if you are going to build a legitimate, successful sourcing business. It’s not sexy but it’s essential, so grab a coffee and let’s do this.
So, this section includes all of the necessary regulations, licences and data protection information that you need to be aware of. First and foremost, why is this so important?
Well, to start with, it’s a legal requirement. As a Sourcing Agent, you are technically classed as an Estate Agent, and there are legal requirements that Estate Agents must comply with to sell houses. It is currently believed that around 95% of Sourcing Agents are not legally compliant – so should not be presenting packaged properties for sale.
Secondly, and still as important, having the right regulatory bodies, insurance and licenses in place differentiate your business from other amateur sourcing agents. This establishes credibility and professionalism; both of which are essential if you want an investor to partner with you. Not having these credentials in place will undoubtedly limit your business and make you liable for some pretty scary fines!
Sourcing is like any other business in that there are certain insurances you are expected to have in pace. These protect your business, your customers and just as important, they protect you.
Here we can show you how to set these up correctly from the beginning. We must stress that while we offer recommendations, nothing provided by Source My Property is intended to be used as, or in place of, legal advice. We would always recommend you conduct your own research and speak with the relevant legal experts as necessary.
First things first, protect yourself financially. At SMP we advise having all of the below in place.
Professional Indemnity Insurance (PII)
If you run any business that provides advice, services or designs to a customer, you should have Professional Indemnity Insurance. This insurance provides cover for the legal costs and expenses in defending your business from a claim of inadequate service; if your business is sued by a client. This could happen if a client is unhappy with the work you’ve produced or with the professional advice you’ve provided. Professional indemnity insurance is an absolute must for any professional business. As a sourcing business, you will work with Sellers, Estate Agents and Investors so having sufficient insurance to protect your company, should you ever need it, is a no brainer.
This may seem like a strange one, but it’s crucial. It is highly unlikely that as a Sourcing Agent, you will be able to operate without a vehicle, so it needs to have the correct insurance. Sourcing is your business, and if you are driving the vehicle for your business, you must inform your insurance provider that it is being used for business purposes. We see so many people overlook this one, so contact your insurance provider and get your policy amended if needed.
Client Account Insurance
As a Sourcing Agent, you will need to hold client money. If you have an account that is holding client money that is not immediately needed, it needs to have appropriate Client Account Insurance. This account needs to have the word ‘client’ in it and the funds must be kept separate from all other company accounts.
Other non-essential insurance
- Public Liability Insurance – you will likely work with other service providers so it is recommended to have public liability insurance, which covers you (from £1 million) against the risk of death, injury or damage to property suffered by others, including the general public.
- Income protection insurance – if you are unable to work due to illness or injury, this insurance will protect you against loss of income
- Buildings and contents insurance – If you work from home, you must check with your domestic provider as they may not cover running a business from home. This one is also important if you have separate commercial premises.
- Directors liability – is liability insurance payable to the directors and officers of a company, or to the organization as reimbursement for losses or defense costs in the event of a loss as a result of a legal action.
- Employers Liability Insurance – once your business takes on its first employees, you must have a minimum level of employers liability insurance of over £5 million.
There are numerous providers for the above insurances, and usually the most suitable will depend on your current, individual situation. We understand choosing the right providers can be complex and often daunting, so we go into a lot more detail on the right protection during our course and have a regulated firm available there to advise you and ensure you are covered asap.
4.2 The Property Redress Schemes
The Property Redress Schemes were set up to provide an independent Ombudsman service for landlords and tenants to use if they are unhappy with the service provided by their letting agent.
As a Sourcing Agent, it is mandatory that you are registered with one of the three government recognised property redress schemes; The Property Redress Scheme, The Property Ombudsman or the Ombudsman Services. The latter scheme has recently withdrawn and is no longer open to new members. Both of the remaining schemes have their own membership needs and levels, with varying costs and services, so we recommend you study each one in detail to decide which best suits your business and compliance needs.
As before, being registered with a property redress scheme establishes your business as trustworthy, reliable and honest. It is not uncommon for start-up sourcing business to ‘delay’ registering until they have a few deals under their belt. We strongly recommend against doing this. Not only can the fines be heavy, in the region of £3,000, but it also tells your investors you’re not a professional business. Investors are usually savvy, and being a member will set you apart from your amateur competitors. Yes, there is an upfront cost but in the long run this will bring you more business.
4.3 Data Protection
The Data Protection Act 1998 controls how personal information can be held and an individual rights to ask for information about themselves. It further covers how personal data is obtained, recorded and processed.
As individuals, we have rights to control information about ourselves, so anyone holding personal data (other than for domestic use) is legally obliged to comply with the Data Protection Act. This can range from businesses holding your data for marketing purposes, to health care providers processing health-related information.
As a Sourcing Agent, you will need to hold and process personal information regarding both sellers and investors. For this reason you must register with the Information Commissioners Office (ICO) who monitor data protection compliance.
Within your business, you must identify a specific person responsible for Data Protection in your company known as the Data Protection Officer. It will be their responsibility to ensure you are compliant with the eight data protection principles.
General Data Protection Regulation
On the 25th May 2018, European data protection legislation was updated for the first time in 20 years and the General Data Protection Regulation (GDPR) came into effect. This regulations was designed to build on current data protection, with a focus on strengthening the rights that individuals have regarding their personal data and seeks to harmonise data protection laws across Europe, regardless of where that data is processed.
For GDPR purposes, personal data means “any information relating to an identifiable person who can be directly or indirectly identified in particular by reference to an identifier.” This can include a wide variety of information, include name, email address, contact phone number etc.
The GDPR identifies different roles regarding data protection; the data subject who the personal information is about, the data controller who “determines the purposes and means of processing personal data and the data processor who “is responsible for processing personal data on behalf of the controller”.
As a Sourcing Agent, your clients are the data subjects, you are the data controller and any external platforms you use to hold this data (i.e. a customer relationship management tool) are the data processors. As a data controller, it is your responsibility to ensure that you are compliant with the eight principles of data protection. It is also your responsibility to ensure you have a process in place to support the rights of the data subject; the rights to access, rectification, erasure, restrict processing and/or object.
Being compliant with data protection and GDPR is essential, and we strongly recommend you familiarise yourself with your individual responsibilities.
4.4 Optional Memberships
Another step we definitely recommend is to become members of some important professional organisations. These are not mandatory but we believe they are invaluable from a knowledge and support perspective. Further, they add further credibility and professionalism to your brand and business. We would recommend becoming members of the following organisations:
- Residential Landlords Association
- National Association of Estate Agents
- Association for Residential Letting Agents
4.5 Forms and Contracts
Finally, there are a number of forms and contracts that you will need to have access to and we would strongly recommend you have these in place from the beginning. We have spent years perfecting our forms and contracts and have found them to be invaluable, so we share these with prospective Sourcing Agents who we attend our training course. Here are a few of the forms and contracts we would suggest:
- Viewing Form – to collect all information and costings relating to your viewing and conversations with agents or sellers. This is critical if you’re seeing multiple properties a day
- Customer Relationship Management (CRM) – the tool you’ll use to capture and process all of your client information, manage different projects and organise your overall business.
- Source Fee Agreement – the document that you will request your investors sign to acknowledge the purchase and source fee you have agreed.
- Memorandum of Sale – the document that covers all particulars of the sale including the buyers and sellers details, their solicitors and finance brokers
- Heads of Terms (HOT) – these are used for options only. Your Option solicitor will draw up final agreements based on agreed HOT which covers layman’s terms of all the particulars specific to that deal.
For more details on this process, we run a Sourcing academy: https://www.sourcemyproperty.com/academy/