Finders Fee Legal?

Question

Hi Investors,

Is a finders fee legal in California? I am going to connect a seller (of a newly created winery) to a cash buyer/investor. If I make the deal happen, am I legally allowed to get a finders fee?

Laurie

Jason Farmer · Answer

@Mary B. huh?

@Alexandra King

A finders fee is legal here in CA..And any where else. I have 2 cash buyers, and ive never done an assigment, because i dont like having to explain to a seller whem their signing escrow docs why the sellers names is someone other than me (when ive already have them sign a contract with my name on it...I write a seperate 2 line finders fee contract, that we both sign, and that contract goes into escrow with all the other docs, and when everyone is paid out escrow gives me my money..

My tax lawyer says is perfectly fine, your going to need to show uncle sam where all that bigmoney is coming from anyway...

Jason Farmer · Answer

@Dev Horn i agree with your 1st two paragraphs , but you went away from the original posting ..Were talking about an unlicensed party..And rather or not you can charge a referral/finders/or whatever you want to call it fees..

No ones comparing the two transactions. Wholesaling allows you to hide behind contracts, Most of my deals i dont even exsist to the seller... I rarely  even speak to the sellers....Ivenever personally put a seller under contract under my business and Ive never assigned a contract,and ive never signed a HUD(on a wholesale deal)

while being a licensed agent everything must be disclosed..Moral conduct id what an agent should live by...

As a business owner im not governed by NAR, NJAR, or a  local board. I can call it a "SHOW ME THE MONEY FEE" if i want. I can call it "WHAT YOU TALKIN BUT WILLIS FEE" if want..

I can read most your post and its clear your an educated investor and very experienced, but your giving the wrong advice on this one. Theres a company that allows you to sell your leftover food and they host the app, and get a profit cut once someone agrees to buy your leftover food...LOL...LeftoverSwap

Same concept, same results, different idea...

..

Peter Bui · Answer

Is finder fee or assignment fee would trigger a hefty UBTI tax for SDIRA LLC?

Hello everyone,

I am just starting out with the Wholesale Real Estate process and appreciate any advise on this topic so that I have a clear understanding about the DOs and DONt in RE Investing with SDIRA.

As a wholesaler, just simply finds great deals using a variety of marketing strategies, puts them under contract, and sells that contract to buyer for an "assignment fee" or "finder's fee". I have the understanding that it would trigger a UBTI tax after depositing the check to my LLC account and can be taxed as high as 40% and to IRA custodian this is considered an active business/inventory and is illegal???

I am sure that there are experienced wholesalers here have been doing this for long time and would like to share....Are commissioned checks being deposited under their individual names instead of LLC name and just reported as general income with the after tax profit? (Is being taxed based on the one's income tax rate bracket only?)

Does this apply to all wholesaling in SFR, apts, and notes with the assignment fee?

Appreciate your sharing thoughts in advance. Thanks!

Wayne Brooks · Answer

Depends solely on your state RE licensing law.  It doesn't matter what you call it, if it is a fee for facilitating the sale of real estate, it's either illegal or it's not.  Usually illegal.

Mary B. · Answer

Is consultant fee legal in Ca? Do you have to be licensed as a consultant in Ca? If its yes for the first question and no is the answer for the second question that's your alternate term to use in lieu of finder's fee. Often there are alternate terms to utilize for fees. Just find a commercial investor to chat with other than a banker noone has more....

Kudos,

Mary

Account Closed · Answer

Wow I'd like to know too! did you even find out @PeterBui?

My question is:

I am new to Real Estate Wholesaling, I am getting a lot of request to do a joint ventures. And I am confused on what types of simple documents need to be submitted to whom and singned by what party in order to get paid? a lot of the more experienced sellers just say they have a trust with their JV's and dont sign anything - this isnt any help. all my contacts are fairly new. Also, I just decided to request a finders fee for a person who is already on a JV because I do not wish to be a 4th party in an assignment contract - seems complicated. Ive googled finders fee agreements but they seem to complex. Does this agreement go to escrow?  does it need to be legaly notarized? if so Does  the copy that goes to escrow have to be wet print? Or does this contract stay between her and i and is she responsible for payment? is there a need for legal jargon on these or can I type one up myself with stipulations and or a bullet agreement based on what I am asking? can I split her assignment fee since I am doing most of the marketing? say she's getting 5k I get 2.5k. Sorry, so many questions,. Im clearly new to this. Anything helps, THANKS in advanced.

David Oldenburg · Answer

@Alexandra King I do a lot of business in the Sacramento area. I am also a licensed real estate broker and licensed lender.  However, I also use my own money and do a lot of real estate investing.  There are 2 sides to this issue. If I have my lender or Realtor hat on, I can't pay a finders fee, unless the person receiving the fee is licensed and I meet other RESPA required rules.  However, if I am using my own money as a private investor and making no commissions from being a lender /Realtor etc..., I will pay a finders fee.  Example:  I get a call from someone who finds a potential flip and I end up buying the home and pay cash with my own money... I will gladly pay a referral fee to that person.  There is no law against giving your own money away and anyone can choose to give someone their money.  The challenge is that there are very strict rules on referral fees when it leads to something of value in a real estate transaction, especially if that person paying or receiving the fee is a licensed Realtor / loan officer.  You can read all about RESPA and referral fees via Google search.

Wayne Brooks · Answer

@Jason  Farmer

There is a distinction in the type of lead (but not related to what you label it):

1). A set fee for a Lead:  as Dev was referring to,   $100 fee for a lead, not dependent upon whether it results in a sale or not, is legal.

2) A fee based upon whether a real estate deal closes or not, either flat fee or a %, generally is not legal.

I'm not sure where this distinction originated, but seems to be the generally accepted principle.

Finders Fee Legal?

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