Rules for Referral & Finder's Fees in Real Estate

Instructor: Shawn Grimsley

Shawn has a masters of public administration, JD, and a BA in political science.

Finder's fees are common in commercial real estate transactions. In this lesson, you'll learn what a finder's fee is and discover when a licensed salesperson or broker can pay someone a finder's fee and when the law prohibits it.

Finder's Fee Defined

Frank and Alice are friends. Alice works as a licensed real estate salesperson in commercial real estate, while Frank is a software engineer. Alice currently has a commercial building downtown listed for sale. Frank knows that the owner of his company, Steve, likes to invest in real estate, so he refers Steve to Alice. Steve thinks the building will make a good investment and decides to buy it.

Alice wants to acknowledge Frank's contribution to the deal and see that he's paid a finder's fee for hooking her seller up with Steve. A finder's fee is a fee paid to a person who makes a deal possible by bringing the parties together. A finder's fee is also called a referral fee. In our example, Frank brings his boss to Alice who ends up buying the property. Frank is the 'finder' because he found the buyer for Alice and her seller.

Finder's fees are common in certain business transactions and may be paid the buyer, seller, or even the licensed salesperson or broker. The payment can be a flat fee, but it is often a percentage of the sale price, much like a commission.

State Law

Real estate agents need to know that state law varies on when it's permissible to pay a finder's fee. Consequently, it's very important to check your local laws to ensure you actually can pay a finder's fee, or even receive one. Making a prohibited payment can result in disciplinary action, including the loss of your license.

Most states will allow Alice to pay a finder's fee to someone who is a currently licensed salesperson or broker. On the other hand, many states prohibit the payment of a finder's fee to someone like Frank, who is not licensed. However, some states - like California - may permit the payment of a finder's fee to a non-licensed person so long as the finder is only involved in introducing the parties and is not otherwise engaged in activities requiring a license.

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