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.
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.