{"id":133542,"date":"2021-02-04T09:30:12","date_gmt":"2021-02-04T16:30:12","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=133542"},"modified":"2023-03-31T03:03:54","modified_gmt":"2023-03-31T09:03:54","slug":"finders-fees","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/finders-fees","title":{"rendered":"Finder&#8217;s Fees: What Real Estate Investors Need To Know"},"content":{"rendered":"<p><iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm?e=BIGPOC5840255188&#038;light=false\" width=\"100%\"><\/iframe><\/p>\n<p>Whether you\u2019re an experienced investor or just starting out, you\u2019re always on the lookout for properties with the best potential for profits and appreciation.<\/p>\n<p>To get a jump on the competition, many real estate investors pay finders\u2019 fees. By definition, a finder&#8217;s fee is the compensation provided to a person or brokerage that helps facilitate your real estate transaction.<\/p>\n<p>Usually, it\u2019s the real estate agent who directly pays a finder\u2019s fee, not the investor. But since most commercial real estate transactions involve paying at least one of these fees, you\u2019re paying for them indirectly as an investor.<\/p>\n<p>Finder\u2019s fees may be common, but they are regulated by law. Let\u2019s examine how finders\u2019 fees work and how you can protect yourself from any unethical charges.<\/p>\n<h2>How Much Is a Typical Finder\u2019s Fee?<\/h2>\n<p>The \u201cfinder\u201d in a real estate transaction is the person who brings both parties together in the first place. In exchange for this matchmaking service, the finder receives a commission from the brokered deal. Fair enough, right?<\/p>\n<p><strong><em>Related: <\/em><\/strong><em><a href=\"https:\/\/www.biggerpockets.com\/blog\/2011-02-10-finders-fee-in-real-estate-investing-legal\" target=\"_blank\">Finder\u2019s Fee in Real Estate Investing \u2013 Is it Legal?<\/a><\/em><\/p>\n<p>Also called \u201creferral fees\u201d or \u201creferral income,\u201d finders\u2019 fees usually are a percentage of the real estate deal in question. Most states allow the fees to be anywhere from 3-35% of a transaction\u2019s value.<\/p>\n<p>Real estate agents use finders\u2019 fees as a way to encourage their business contacts to think of them when they know of someone who is looking for a property. The payments can become a lucrative part of their business.<\/p>\n<p>Federal and state laws generally permit licensed brokers to collect finders\u2019 fees for the following services:<\/p>\n<ul>\n<li>Finding a property that meets a client\u2019s specifications<\/li>\n<li>Locating a buyer who is interested in a property<\/li>\n<li>Closing a real estate transaction<\/li>\n<\/ul>\n<p>You can look at finders\u2019 fees as a form of incentive that keeps the whole real estate investment game going. Investors are looking for the best deals going, and the \u201cfinders\u201d help make the best deals happen. At least that\u2019s the premise that has kept the concept of paying these middleman fees going through the years.<\/p>\n<h2>What\u2019s Normal for Finders\u2019 Fees?<\/h2>\n<p>First, there is no legal requirement to pay a finder\u2019s fee. Although the payments are a common practice in the real estate industry, no one is legally entitled to them. That means that a broker or agent can ask you to pay a fee, but you are not legally bound to do so.<\/p>\n<p><strong><em>Related: <\/em><\/strong><em><a href=\"https:\/\/www.biggerpockets.com\/blog\/situations-you-need-real-estate-lawyer\" target=\"_blank\">Buying? Selling? New to the Business? Why You Need a Lawyer Now<\/a><\/em><\/p>\n<p>If an agent pressures you by telling you that you have to pay a finder\u2019s fee, it would be best to move on to someone else. For example, a finder&#8217;s fee is different from a <em>service charge<\/em>, which is paid to a person or business in exchange for completing a service.<\/p>\n<p>Finders\u2019 fees usually are paid between brokers, with real estate agents drawing up agreements to streamline the process. A written document can help ensure all parties are clear concerning what the finder\u2019s fee is and who is paying it.<\/p>\n<p>Sometimes there are no contracts, however, and an agent simply writes a check as a \u201cgift\u201d to the intermediary. This practice may seem a bit unusual to a new investor, but it is perfectly legal.<\/p>\n<h2>What\u2019s Not Normal\u2014or Even Illegal\u2014for Finders\u2019 Fees?<\/h2>\n<p>Here are some red flags to be aware of when it comes to finders\u2019 fees.<\/p>\n<ul>\n<li><strong>You are asked to pay the finder\u2019s fee directly.<\/strong> Don\u2019t do it. It is highly unusual and may be illegal in your state.<\/li>\n<li><strong>An individual can\u2019t explain their involvement in the property transaction or who they specifically know who is directly involved with your deal.<\/strong> In other words, make sure that anyone requesting compensation has played a meaningful role in your transaction.<\/li>\n<li><strong>The individual is unlicensed.<\/strong> In most states, anyone requesting a finder\u2019s fee must be currently licensed under state and federal law. If an agent pays a referral fee to someone without a valid license, they could have their own license revoked by authorities.<\/li>\n<li><strong>Your gut tells you something is wrong. <\/strong>If something just feels off about the whole conversation surrounding a finder\u2019s fee, trust your instincts.<\/li>\n<\/ul>\n<p>Finders\u2019 fees are an accepted way of rewarding individuals who help make real estate deals happen. The Consumer Financial Protection Bureau (CFPB) and The Real Estate Settlements and Procedures Act (RESPA), passed by Congress in 1974, help prevent illegal practices in the real estate industry. However, there are some unethical people out there, and the fees can be a bit tricky to navigate if you are uninformed or unprepared.<\/p>\n<p>Understanding finders\u2019 fees and knowing what percentage you are willing to pay are important aspects of becoming a successful real estate investor. Knowing when to walk away from a shady real estate agent or transaction is a skill you will develop with experience.<\/p>\n<p><a href=\"https:\/\/www.biggerpockets.com\/webinars\" target=\"_blank\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-91217\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/08\/blog_ads-01.jpg\" alt=\"\" width=\"700\" height=\"85\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/08\/blog_ads-01.jpg 700w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/08\/blog_ads-01-300x36.jpg 300w\" sizes=\"auto, (max-width: 700px) 100vw, 700px\" \/><\/a><\/p>\n<p><em>Questions? Comments?<\/em><\/p>\n<p><strong>Join the discussion below.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Understanding finders\u2019 fees and knowing what percentage you are willing to pay are important aspects of becoming a successful real estate investor.<\/p>\n","protected":false},"author":23983,"featured_media":132767,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5524,7119],"tags":[],"class_list":["post-133542","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-investing-for-beginners","category-biggerpockets-daily"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/133542","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/23983"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=133542"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/133542\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/132767"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=133542"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=133542"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=133542"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}