It’s common for real estate agents to offer or request a finder’s fee as part of an investment transaction. If you’re a Taylorville rental property investor, the topic of finder’s fees will likely come up at some point. Being prepared and understanding the rules around these fees is critical. This article explains what to expect when giving or receiving a referral and highlights potential red flags in illegal or irregular finder’s fee situations.
Finder’s Fee Basics
A finder’s fee, also called a referral fee, is a commission paid to an intermediary in a transaction. In real estate, the “finder” is someone who connects two parties to facilitate the lease, sale, or purchase of a property. Agents often use finder’s fees to encourage referrals from their contacts, and in general, this practice is legal.
State and federal law allows brokers or agents to pay a finder’s fee to someone who helps locate a buyer, find a property for a client, or otherwise facilitate a real estate transaction. For example, if an agent has a client looking to buy or lease property in another state, they may refer that client to a local agent in the target state. In exchange for the referral, the original agent may receive a finder’s fee since the transaction would not have occurred without their help.
A Typical Finder’s Fee
Finder’s fees are usually paid as a commission once the transaction is completed. Fees often range from 3% to 35% of the deal, depending on state laws and negotiated agreements. Most finder’s fees are documented in writing to avoid misunderstandings, though in some cases, an agent may issue a check as a “gift” to acknowledge assistance, which is also legal.
Red Flags to Watch For
Although finder’s fees are legal and widely used, there are situations that could raise concerns. Paying a finder’s fee directly to an unlicensed agent may be illegal, and you generally need a real estate license to request or receive a finder’s fee in many states. Improper handling of these fees could result in significant legal trouble.
It’s important to research both state and federal laws regarding finder’s fees before participating in any transaction. Agencies and statutes such as the Consumer Financial Protection Bureau (CFPB) and the Real Estate Settlements and Procedures Act (RESPA) exist to prevent illegal practices in real estate transactions, so familiarize yourself with these rules.
Work with Experienced Property Management Experts
Whether you’re a seasoned investor or just starting out, having the right information and team on your side is essential. If you’re looking for your next rental property, Real Property Management Northern Utah can help. Our Taylorsville rental management experts work with investors to maximize cash flow and grow investment portfolios. Contact us online or call 801-546-1770 to learn how we can support your real estate goals.