How property deal sourcing works in the UK: a plain-English guide

Deal sourcing, sometimes called deal packaging, is one of the most misunderstood corners of UK property. Done properly, it saves investors months of legwork. Done badly, it's a minefield. Here's how it works, and how to tell the difference.

What a deal sourcer actually does

A sourcer finds property opportunities, often off-market or below market value. They analyse the numbers, negotiate the price, and package everything an investor needs to decide: purchase price, refurb estimate, expected rent, comparable sales and an exit strategy.

The investor buys the deal and the sourcer earns a sourcing fee, typically £2,000 to £5,000 depending on the size of the deal.

Why investors use sourcers

Time and local knowledge. If you live in London or work full time, you can't easily view 30 properties in Gloucester, build relationships with agents, or know which streets let quickly and which don't. A good local sourcer does that every week. You're paying for their pipeline and their groundwork.

The compliance that protects you

Check this before you pay anyone a penny. Sourcing for clients counts as estate agency work in UK law, so a legitimate sourcer should be:

• a member of a government-approved redress scheme (The Property Ombudsman or the Property Redress Scheme)
• registered with the ICO for data protection
• registered with HMRC for anti-money-laundering supervision

Professional indemnity insurance is a strong plus. If a sourcer can't show you these, walk away. You can check each registration on free public registers in a few minutes.

Be wary of anyone advertising fixed percentage returns or 'guaranteed' profits to the public. Promoting investment returns is regulated, and most sourcers aren't authorised to do it.

Questions to ask any sourcer

• How do you verify your numbers? Can I see the comparables?
• What exactly does your fee cover, and when is it payable?
• What happens to my fee if the deal falls through?
• Do you have any personal interest in this property?
• Who holds any money I pay before completion?

A professional sourcer will welcome these questions. If they're evasive, that's your answer.

How we do it at Smiths Developments

We source and package deals in Gloucester and the surrounding GL postcodes, the same patch we invest in ourselves. Every deal pack includes the full numbers, our workings and the risks as well as the upside. We're a member of the Property Redress Scheme, registered with the ICO, and have applied for HMRC anti-money-laundering supervision.

The figures in this article relate to specific past projects or typical local ranges and are shown for illustration only. Property values can fall as well as rise. Returns are not guaranteed. Nothing in this article is financial advice. Always do your own due diligence and take independent advice before investing.