Category: 

What Is a Finder's Fee?

Real estate transactions involve finder's fees.
Article Details
  • Originally Written By: Michael Pollick
  • Revised By: A. Joseph
  • Edited By: Niki Foster
  • Last Modified Date: 25 September 2014
  • Copyright Protected:
    2003-2014
    Conjecture Corporation
  • Print this Article
Free Widgets for your Site/Blog
The world’s first dog ate reindeer and horse meat.  more...

October 30 ,  1938 :  Orson Welles' "War of the Worlds" was broadcast on radio, causing a panic among some   more...

Buying and selling is not always easy, especially if the item in question is a major company or a valuable parcel of real estate. Mortgage companies and other lenders might be anxious to do business with a qualified buyer, but they can't always make the phone calls and do the legwork to find a buyer themselves. This is where a middleman might enter the picture, and his or her financial reward for locating a buyer is often called a finder's fee.

A finder's fee is an amount of money, usually calculated as a percentage, that is given to the person who brings the buyer, seller and possibly lender together. For many transactions, this fee is negotiated ahead of time and put in writing before the sale is completed. Licensed real estate agents and mortgage brokers commonly collect a referral fee, which is simply another form of finder's fee. Some fees can be as high as 10 percent of the total selling price, but it's far more likely to earn about 0.5-1.0 percent. This can still be a hefty amount if the transaction is a company buyout or an expensive land deal.

Ad

The concept of a finder's fee is not limited to the worlds of real estate and corporate mergers. Some people earn a living by connecting motivated sellers with interested buyers on a smaller scale. For example, an antique toy collector might be seeking a specific item to complete his or her collection. If a middleman who is familiar with the antiquing business can locate the toy in an antique mall, he or she might be entitled to a finder's fee from the buyer or seller. This usually is an informal agreement between private parties.

The crux of the problem with this type of fee is that unless the middleman is a licensed professional, such as a mortgage broker or real estate agent, neither party might feel obligated to pay a finder's fee. In fact, in some jurisdictions, charging this type of fee is illegal. Additionally, some people might argue that a simple phone call or casual suggestion is not worth a percentage of the sales price.

Buyers and sellers are more likely to pay a finder's fee if the middleman clearly performed a service. The parties involved should check the local laws to be sure that they are in compliance with the laws before charging or paying a finder's fee. If it is legal, the fee should be discussed early in the process, or the only reward for the middleman could be a pat on the back and a hearty handshake.

Ad

More from Wisegeek

You might also Like

Discuss this Article

anon959611
Post 22

Should the buyer or seller pay the fee?

anon327945
Post 20

I have found a buyer for a farm that has been sitting on the market for a year now. The farm is selling for $2,000,000. The seller has asked me how much do I want as a finders fee? Is there a standard percentage I should be asking in this case? Would 1 percent, for example, be asking too much?

anon297059
Post 18

Somebody referred me to do some computer repair work for a friend of theirs. I did the repair work and the client and I became friends. One and a half years later, we (client and I) decided to start an online business not related to computer repair. Is the original person who introduced the computer work entitled to a finder's fee?

anon282365
Post 17

How do I calculate my "finder's fee" in this situation:

Joe Shmo says, "I will pay you a finder's fee if you can find me a good electrician!"

I make a few calls, procure and provide contact info, and both parties benefit. I never specified a fee, and wasn't offered one after I gave Joe Shmo a valuable contact (the electrician).

In the future, how would I quantify a fair compensation for myself for facilitating Joe's ability to gain financially?

The "contact" doesn't need to compensate me, but Joe Shmo can spend substantially lessmoney to get work done than if he'd had to shop his work around and pay the "going rate".

A better example is this: Joe Shmo only has to pay $10 to get his radio fixed, rather than the "going rate" of $20.

Joe Shmo makes $10 more on every radio he sells than everyone else because I opened lines that would have been closed to him.

DrZ
Post 16

I have entered into a formal finders fee agreement with a Canadian company to identify qualified investors for a major construction project. It is covered by Canadian law. I have been advised that even with a written agreement there are instances where the other party will not pay. Are there specific legal requirements (licenses, certifications, etc.) of finders in this type of arrangement that could lead to such a circumstance?

anon245098
Post 15

Should the finders name be on the contract for the sale of the house and who pays the fee to the finder -- the buyer or the seller?

anon85918
Post 14

ok here is my issue. my uncle's company is seeking for a lender to start up his business, and i got one lender who is interested in lending the money to my uncle.

My uncle agreed to give me 20 percent with distribution as follows: 5 percent upon disbursement of the money, which i can call a finder's fee and another 15 percent in a form of profit sharing after two years of establishment.

Besides being the finder, i also help him do all documentation, negotiate, do je presentation to the lender for him, which means my uncle will only meet the lender during the signing of lender-borrower agreement.

My question is am i entitled to get the 5 percent and 15 percent legally? thank you, Bee

anon48501
Post 12

Thanks for your help. We have a commercial customer who asked us to secure a commercial loan for their project for a fee, which we will do through a intro to a money source, with a fee agreement payable from closing, to be legal. what form should this fee be in: Finders fee,consultant fee,loan packaging fee or what? It is a Nevada corp, and DC property, with a Maryland or DC closing location. Thanks again for your time.

anon38318
Post 11

On item 3 by jspope... would a "joint" arrangement work? For example, if I find an opportunity but don't have the necessary license, could I make an agreement with someone that is licensed, and share the finder's fee?

anon37737
Post 10

A talent scout approached me and asked me did I know of a good singer. I introduced them to one and now they are *very* interested in introducing them to a major record label. Should she get signed? I am not looking to be involved on a continous basis but I am looking to get paid a finders fee from the talent scout. How much should I be looking for?

anon28816
Post 9

Hi

Could you recommend me to a few good legal documents regarding finder's fees? A client of ours is looking for a heavy machinery unit which we have sourced for them. Before I divulge the location of the unit, I would like to sign an agreement claiming a commission of the purchase price on completion of the deal. I haven't been able to find any. Please let me know.

Thanks

Nik

anon27806
Post 8

My 86 year old Dad was being taken care of by shall we say John. We payed him 3300.00 per month. After about 2 years of care John decided to call us and inform us that he had to leave to another State, and has found another care home for him to live in.

John is now asking for a finders fee in the sum of about $3'000.00. Can he ask legally for this money?

He was never licensed in the first place, we come to find out later. John has no intentions of returning to California. He left without allowing us to get Dads belongings out of the house he was renting while taking care of Dad. I contacted the owner and her response was I can't help you unless you pay $2200.00 that John owes for rent past due. What do I do???

Thank You

Dads Son

mhaltom
Post 6

Do I need a license in the state of California to be able to work for a finders fee?

anon7300
Post 5

Under California law, can a Real estate Agent offer a finders fee to people who find a buyer or seller for the agent?

jfstraw
Post 4

Almost everyone who tries to earn Finder's Fees actually does - but - most of them never get paid. They know how to 'find' things, but they don't know how to structure the deal so they get paid.-- SO ...

In 1978, I wrote and published a comprehensive Finder's Fee course detailing the methodology ... over 50,000 copies have been sold since it was written.

A FINDER is NOT a PRE-SELLER -- Pre-sellers accept a selling price from a product source, add-on what they feel to be a fair margin of profit, and sell the item. After they make a sale, they then buy the product and ship it to the buyer.

A FINDER is NOT a DEALER -- Dealers take-on a product, or service, for continuing promotion and sales. They are responsible for the distribution of a product, or service, from the prime source to the end user.

A FINDER is NOT a REPRESENTATIVE or AGENT for either the buyer or seller. -- Representatives & Agents are empowered by their clients to negotiate the purchase, or sale, of specific products or services. They can legally sign documents obligating their clients.

Too many "supposed" Finders are not really Finders at all -- they are Salesmen, Agents, Representatives, and/or Pre-sellers.

A Finder is nothing more than a "match-maker" for a fee. The professional Finder simply matches QUALIFIED buyers with QUALIFIED sellers, or vice versa - "FOR A FEE!"

Finders DO NOT sell anything; except their knowledge.

Finders DO NOT negotiate anything; except their own fees.

Finders DO NOT add-on their profits.

"Contacts" are the bread and butter of the professional finder. All he is really selling is names & addresses of QUALIFIED contacts.

The following are the most important points to remember:

(1) Be a FINDER; not an Agent, Representative, Salesman, or Pre-seller. DO NOT try to sell anything; simply offer QUALIFIED contacts to your clients who offer a Finder's Fee. Nothing more.

(2) As a FINDER, let your contact and your client negotiate their own deal; once you have brought them together.

(3) Use the finest materials (letterheads & envelopes) available, and maintain the most professional business approach in all of your dealings.

(4) Furnish only QUALIFIED contacts to your client. UNqualified contacts only come from UNqualified "amateur" finders.

(5) NEVER give your client the name & address of another Finder. When you do, you start a Daisy Chain, and are not entitled to any form of Finder's Fees.

(6) READ...READ...READ...ever increasing the number and quality of your contacts.

(7) Keep chronological and complete files of all of your correspondence (even telephone calls) with both your contacts and your clients.

(8) Always FIND IT FIRST, before contacting a potential client. This one action, alone, will save you a lot of money in paper that doesn't go into the waste basket.

(9) If you don't get a response from the potential client, DO NOT do what childish amateurs do ­ DO NOT blame the advertiser; blame yourself. You probably didn't offer the potential client what he wanted; so, try again, or give up, on that particular finding opportunity.

NOTE: If one advertiser doesn't respond to your contact offer, you should keep your eyes open for a similar Finder's Fee opportunity; to which you can make the same offer. - BE SURE to re-confirm your contact.

(10) The "key" word in being a successful finder is PATIENCE. The reason most amateur finders never earn their first fee is because they push for a fast close. They try to negotiate the deal for the principals. DO NOT do it!! Let your principals close their own deal, in their own time. A "right" deal will close itself. A "wrong" deal will never close; no matter how hard you push and shove.

As a finder, you can work anywhere you want, at any time you want - just by keeping your eyes & ears open. Even an offhand comment overheard on the street can lead to a finder's fee.

----------------------------------------------------

J.F. Straw

Moderator's reply: Thank you for sharing your expertise!

carol123
Post 3

I am attempting to find out if I need a license. I know as a mortgage broker I was licensed under my company's license.

Simple questions. Do I need a license to simply find $$$ for people - I have several who want unsecured loans - and collect a finder's fee from them? If so what kind of license is necessary?

Thank you.

jspope
Post 1

This was a well-written article. I would like to make a few observations:

1. Finder's fee arrangements should ALWAYS be in writing. "An informal agreement between private parties" just doesn't cut it.

2. A professional finder does NOT perform any other services. A finder simply introduces a buyer to a seller.

3. If you are finding in a heavily regulated field, you really should obtain the necessary licensing. Some have come up with clever ways of getting around the law. However, I suggest that if you don't want to become licensed, pick a different field to find in.

Post your comments

Post Anonymously

Login

username
password
forgot password?

Register

username
password
confirm
email