What is a Finder's Fee?
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Buying and selling is not always easy, especially if the item in question is a multi million dollar company or a valuable parcel of real estate. Mortgage companies and other lenders may be anxious to do business with a qualified buyer, but they can't always make the phone calls and do the legwork themselves. This is where a middleman usually enter the picture, and his or her financial reward is often called a finder's fee.
A finder's fee is an amount of money, usually calculated as a percentage, given to the person who brings buyer, seller and possibly lender together. For many transactions, a finder's 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 finder's fees can run as high as 10% of the total selling price, but it's far more likely to earn around .5% to 1%. This can still be a hefty amount if the transaction is a company buy-out or an expensive land deal.
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. An antique toy collector in Maine may be seeking a specific item to complete his or her collection. If a middleman familiar with the antiquing business can locate the toy in a California antique mall, he or she may be entitled to a finder's fee from the buyer or seller. This is usually an informal agreement between private parties.
This is the crux of the problem with a finder's fee. Unless the middleman is a licensed mortgage broker or real estate agent, neither party may feel obligated to pay an actual finder's fee. In fact, in some jurisdictions charging a finder's fee in these cases is illegal. Additionally, some may 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. You should check your local laws to be sure you are in compliance with them before charging or paying a finder's fee. If it is legal, a finder's 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.
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New: Discuss this ArticlePosted by: mhaltom
Do I need a license in the state of California to be able to work for a finders fee?
Posted by: anon7300
Under California law, can a Real estate Agent offer a finders fee to people who find a buyer or seller for the agent?
Posted by: jfstraw
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
Editor's reply: Thank you for sharing your expertise!
Posted by: carol123
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.
Posted by: jspope
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.
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