A sourcing agreement is a contract between you and a property sourcer. Like any contract, it can protect both parties or leave one of them exposed. Most sourcing agents are professional and transparent. But the market is not regulated in the same way as estate agency, and some agreements contain terms that are not in your interests.
This article highlights the most common red flags in sourcing agreements and explains what you should look for before signing.
Red flag 1: Upfront fees with no deal commitment
The most common red flag is a request for payment before any deal is presented. Some agents charge registration fees, monthly subscription fees, or administrative charges simply to access their deal pipeline.
There is nothing inherently wrong with a retainer model — some professional sourcing operations charge a modest monthly fee in exchange for priority deal access and dedicated search time. The red flag is when the upfront fee is substantial and the agent has no obligation to find you a deal.
Ask yourself: if they could find me good deals, would they need to charge me to look at them? A sourcer with a strong deal pipeline typically earns their fee on completion, not before.
Red flag 2: Vague or unverifiable BMV claims
A sourcing agreement might reference “substantial discounts” or “guaranteed below market value” without defining how market value is measured. If the agreement does not require the agent to provide comparable evidence, you are relying on their word alone.
Look for a sourcing agreement that commits to providing:
– Land Registry comparable sales from the last six months
– Current asking prices of similar properties
– A clear definition of how market value is calculated
– A right to verify the BMV claim before committing to proceed
Without these protections, a claimed GBP 40,000 discount could be based on nothing more than an optimistic valuation.
Red flag 3: Commission on properties you find yourself
Some sourcing agreements claim commission on any property you purchase during the term of the agreement, even if you found it independently. This is known as an “all properties” clause.
These clauses can extend to properties you found through Rightmove, properties introduced by another agent, or even properties you were already negotiating before signing the agreement.
A fair sourcing agreement limits commission to properties introduced by the sourcing agent. An all-properties clause is a negotiation point at best and a deal-breaker at worst.
Red flag 4: No defined geographic or property type scope
If the agreement says the sourcer will find “investment properties anywhere in the UK” without specifying locations or property types, it is too vague to be enforceable or useful.
A good sourcing agreement defines:
– Which towns or postcodes the search covers
– Minimum and maximum purchase price
– Property types included (houses, flats, HMOs, commercial)
– Target yield or BMV percentage
Without these definitions, you could be presented with commercial units in Birmingham when you asked for residential in Portsmouth.
Red flag 5: No performance obligations
Some agreements commit you to paying a fee if you purchase through the sourcer, but the sourcer makes no commitment to find you any deals at all. This is a one-sided arrangement.
A balanced agreement includes:
– A reasonable time frame for the search
– A minimum number of deal presentations
– A termination clause if no suitable deals are found
– A refund mechanism for upfront fees if no deal is completed
Red flag 6: Fees payable on exchange, not completion
Exchange happens before completion. If the purchase falls through between exchange and completion — for example, because the buyer’s finance is withdrawn — you could owe a sourcing fee for a property you did not buy.
Most professional sourcers accept that their fee is earned on completion, when the transaction actually happens. Insisting on payment at exchange without a fall-through waiver is a warning sign.
Red flag 7: No cooling-off period
Sourcing agreements signed at a networking event or after a single phone call should include a cooling-off period. If the agreement has 14-day cancellation rights under consumer contract regulations, that is a sign of a professional operation. If it commits you immediately with no right to cancel, read very carefully before signing.
What a good sourcing agreement looks like
A professional sourcing agreement should be clear, balanced, and specific. It should state:
– Exactly what the sourcing fee is and when it is payable
– How market value will be verified
– Which properties the agreement covers
– What happens if the sourcer cannot find a suitable deal
– How either party can terminate the agreement
How Xelox Properties structures agreements
Our sourcing agreements are designed to be straightforward. No upfront fees for deal access. No all-properties commission clauses. Fees are earned on completion. Our search criteria are defined in writing, and we provide comparable evidence for every deal we present.
If you would like to review a sample agreement and discuss how our sourcing service could work for you, we are happy to talk.
Contact Xelox Properties today to arrange a no-obligation conversation about how we can help with your property investment goals.
