A finder’s fee (also known as “referral income” or a “referral fee”) is a commission paid to an intermediary or the facilitator of a real estate transaction. Finder’s fees aren’t unusual in real estate transactions. The law, however, heavily regulates finder’s fees and it can vary from state to state. Typically, real estate agents pay finder’s fees, not investors, but since commercial real estate investment (REI) transactions almost always include a finder’s fee, investors should ideally know and understand how they operate to make sure they comply with applicable regulations. In some situations, it might be necessary for a real estate lawyer to determine the legality of the fee.
What is the Purpose of a Finder’s Fee?
A finder’s fee is basically a reward for making a deal happen. They are often used as an incentive to keep business parties communicating and to keep agents in mind for referrals on future deals. The finder’s fee can be in the form of a gift, a commission or a percentage of the deal. Most states have laws that allow intermediaries to request anywhere from 3-35% of the deal’s value. As an investor, you won’t be paying the finder’s fee, but any questions about the legality of a fee request should be raised with an experienced real estate lawyer.
What are Potential Red Flags about Finder’s Fees?
As mentioned above, finder’s fees are common and can happen in a number of ways. However, an investor should keep in mind some red flags that the fee might not be on the up and up. First, carefully scrutinize any unlicensed intermediary. As an investor, you want to make sure you understand how the middleman actually facilitated the deal. Also, any request that an investor pay the finder’s fee directly is a clear red flag. If you encounter a red flag or a finder’s fee situation that feels questionable, an experienced real estate lawyer can advise you if the fee at issue is legal and proper and ensure that such a fee complies with all applicable regulations.
When You Need an Experienced Real Estate Lawyer…
Contact Rogge Dunn Group here. Formed by experienced trial lawyers, Rogge Dunn Group is a trial boutique handling business, employment, and FINRA matters. We’ve got the experience to answer questions about REI transactions, related fees and other real estate matters. To view our real estate lawyer results, click here. View real estate testimonials by clicking here.