Whether you’re an experienced investor or just starting out, you’re always on the lookout for properties with the best potential for profits and appreciation.
To get a jump on the competition, many real estate investors pay finders’ fees. By definition, a finder’s fee is the compensation provided to a person or brokerage that helps facilitate your real estate transaction.
Usually, it’s the real estate agent who directly pays a finder’s fee, not the investor. But since most commercial real estate transactions involve paying at least one of these fees, you’re paying for them indirectly as an investor.
Finder’s fees may be common, but they are regulated by law. Let’s examine how finders’ fees work and how you can protect yourself from any unethical charges.
How Much Is a Typical Finder’s Fee?
The “finder” 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?
Also called “referral fees” or “referral income,” finders’ 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’s value.
Real estate agents use finders’ 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.
Federal and state laws generally permit licensed brokers to collect finders’ fees for the following services:
Finding a property that meets a client’s specifications
Locating a buyer who is interested in a property
Closing a real estate transaction
You can look at finders’ 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 “finders” help make the best deals happen. At least that’s the premise that has kept the concept of paying these middleman fees going through the years.
Keep reading the article here: https://www.biggerpockets.com/blog/finders-fees
Subscribe to the BiggerPockets Channel for the best real estate investing education online!
Become a member of the BiggerPockets community of real estate investors – https://www.biggerpockets.com