When it comes to commercial real estate (and real estate in general) earning a finder’s fee on the property that you find can be quite exciting. Usually a finder’s fee might find its way into the hands of a real estate agent or broker. The concept behind getting a finder’s fee is pretty simple to understand.
Normally, there are two entities, the buyer and the seller. The person or company who connects the buyer and the seller is usually the broker. The broker is more or less a professional matchmaker charged with bringing buyers and sellers together. Much more than just a glorified middleman, the broker will match the buyer with sellers and gain a coveted finder’s fee. In the field of commercial real estate, brokers make tons of money in finder’s fees. This is because there are a lot of factors involved in brokering the deal. In commercial real estate the buyer is usually a major investor who is looking to expand their real estate portfolio.
A finder’s fee is usually anywhere between 10-15 percent of the total selling price of the property. Usually it is common practice for either the real estate agent or mortgage broker to collect the finder’s fee. Often it will be referred to as a referral fee. Sometimes the fee is collected out of closing costs while other times it is just a stand alone fee.
It is probably a good idea to draft up a finder’s fee agreement so that there is no discord in the long run. For instance, let’s say that neither the real estate agent nor the mortgage broker found the property. An undisclosed third party found the property. In this case the third party would be considered the “finder” and would therefore collect the finder’s fee.
However, since the third party is not a licensed real estate agent or mortgage broker, there is a strong possibility that he or she will not get their finder’s fee. If there is no written agreement in place then there is nothing to prevent either the seller or the buyer from not paying you the finder’s fee. This is why most commercial real estate deals are very structured with real estate agents, mortgage brokers and even bank loan lenders in place.
If you are working on a commercial real estate deal and are entitled to the finder’s fee, then you should either negotiate a contract or contact a lawyer to make sure that your finder’s fee will not be overlooked.