Sourcing Agents: What is a Terms of Business Agreement?

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Sourcing Agents: What is a Terms of Business Agreement?

If you’re building a property sourcing business, you’ve likely heard of a Terms of Business Agreement. But what exactly is it, and why is it crucial for sourcing and deal packaging?

A Terms of Business Agreement is more than just a piece of paper for an investor to sign. It’s one of the most important documents your business will ever hold, protecting you from failed deals, making sure you get paid, and clearly outsetting from the very beginning your services, fees, terms, and more.

Why is this Agreement so Important?

A Terms of Business Agreement is the backbone of any professional sourcing partnership. It sets out the expectations, rights, and responsibilities between both sourcing agent and investor.

  • Clarity and Transparency: It ensures both parties are on the same page regarding services, fees, timelines and cancellation.
  • Legal Protection: A well-drafted agreement protects everyone involved from potential disputes, outlining terms that are legally binding.
  • Professionalism: It elevates your credibility with clients and investors, proving that you run a professional, compliant business.

Key Elements You Must Include

A strong Terms of Business Agreement isn’t just a formality, it should truly outline what you do and how you’re doing to do it. We often see sourcing agreements that are just a couple of pages long – to make sure you are covered, a well-written agreement will be more than 10 pages long.

Scope of Services: Clearly define what services you will provide for your investor. For example, are you sourcing properties, managing details of the transaction, providing an end-to-end service?

Fees and Payment Terms: Do you have several layers of fees, registration fee, reservation fee, final deal/sourcing fee? Make clear if a fee is taken ‘up-front’ before you even start to work for the investor.

Client Responsibilities: Outline what’s expected from your client, such as providing accurate investment criteria or documentation.

Important Clauses: There are many key clauses that if missing or poorly written will completely negate your agreement or open you up to unlimited liability; the agreement won’t be worth the paper it is written on. Examples of these clauses are “Force Majeure’ and Limited Availability’ – if either or both of these are not present, your liability will become unlimited.

Confidentiality Clause: Include robust wording to protect sensitive information shared between you and your client.

Considering Consumer Law: Is your buyer a consumer? Do you have the required ‘Consumer’ clauses and cancellation rights in your agreement?

Complaints Procedure: Detail the process clients should follow if they’re dissatisfied with your services.

Termination Clause: Spell out the conditions upon which either party can terminate the agreement.

Compliance with Regulations: Ensure your agreement adheres to UK property sourcing regulations, particularly those set by organisations like the Property Ombudsman or NAPSA.

“You must make sure your Terms of Business covers your types of fees, how they work, your services, complaints procedures and more. Many agents we chat to are still using NDAs, which are just not good enough. This is important for both agents and investors to be aware of – to keep both sides protected.” – Tina Walsh, CEO of NAPSA

Common Mistakes to Avoid

Through NAPSA registrations or from Tina’s 13+ years’ experience talking with agents and understanding compliance law, these are the common mistakes we see relating to the Terms of Business Agreement:

  • Using Non-Disclosure Agreements (NDAs) Instead: An NDA is no replacement for a Terms of Business Agreement. While NDAs protect information, they don’t define the scope of services, fees, or obligations.

  • Vague Fee Structures: Being unclear about fees can lead to payment disputes – or not getting paid at all. Ensure your Agreement outlines every detail about costs and payment terms.

  • Not Including Termination Clauses: What happens if either party wants to exit the agreement? Lacking a termination clause can result in unnecessary challenges and won’t cover you if you’ve spent time and effort sourcing properties for your investor, only for them to walk away – or go behind your back!

  • Ignoring Compliance: Always ensure that your agreement aligns with industry regulations and local laws.

  • Failing to Understand: You obtain an agreement, change to your company name, but don’t understand it or the clauses and can’t answer questions posed by a potential investor.

Not sure where to start with creating your Terms of Business Agreement?

Asking a professional to prepare this document will cost you thousands – and writing one yourself comes with serious risk, unless you have studied contract law.

The good news is that through our training partner, Professional Sourcing Compliance (PSC), you can access this vital document and 17x other Legally Required Documents for just £795 (£596.25 for NAPSA Members).

You will be provided with the latest document template, plus a video tutorial showing you how to adapt and when to use for your sourcing business.

You can find out more about getting your copy of this document here.*

Remember, investing in a well-crafted agreement now can save you from significant challenges down the line.

*NAPSA Members get 25% discount on all training courses