What is 'Finder's Fee'

A finder's fee (also known as "referral income" or "referral fee") is a commission paid to an intermediary or the facilitator of a transaction. The finder's fee is rewarded because the intermediary discovered the deal and brought it forth to interested parties. Depending on the circumstance, the finder's fee can be paid by either the transaction's buyer or seller.

BREAKING DOWN 'Finder's Fee'

Often, the finder's fee may simply be a gift from one party to another, as no legal obligation to pay a commission exists. For example, let's examine a real estate transaction. Perhaps an individual is selling a property and a friend discovers a potential buyer. If the transaction goes through, the seller might give a friend a small percentage of the sale, as a reward for finding the purchaser.

How Finder’s Fees Can Encourage More Business

Finder’s fees may be used to reward business contacts who refer new sales and clients to a company. For instance, if a contact arranges a meeting between the buyer and seller of a business, they might receive a finder’s fee for arranging the deal. This can also apply to businesses who seek and gain investors through referrals from others.

There can also be applied to deals where a company acquires certain assets or materials from another company. For example, if a rental car company needed more sedans to add to its fleet; a finder’s fee may be paid to an individual who arranges a purchase of used sedans from a competitor or from a business that no longer needs such vehicles. Likewise, if a movie production company was in the market to acquire more cameras, lights, and other equipment, there may be a finder’s fee for connecting the company with a seller. Finder’s fees could also be offered for securing freelance professionals or contractors to complete a project.

Such a reward is a form of incentive to keep these contacts and resources communicating the needs of a company or organization to potential clientele or partners. While contracts are not required in such arrangements, structuring and agreeing to terms for finder’s fees can keep all parties in agreement on the scope of compensation that will be paid. This may be especially useful for contacts who repeatedly attract to business to the company.

The terms of finder’s fees can vary greatly, with some citing 5%–35% of the total value of the deal being used as a benchmark.

RELATED TERMS
  1. Fee Structure

    A fee structure describes how an entity is to be compensated ...
  2. SEC Fee

    The SEC fee is a transaction cost attached to the selling of ...
  3. Bank Fees

    Bank fees are nominal fees for a variety of account set-up and ...
  4. Total Annual Fund Operating Expenses

    Total annual fund operating expenses are a fund's costs, such ...
  5. Loan Application Fee

    A loan application fee is a fee charged to a potential borrower ...
  6. Layered Fees

    Layered fees are a type of fee schedule that leaves investors ...
Related Articles
  1. Personal Finance

    Do You Know How Your Financial Advisor Is Paid?

    It is important to understand how your financial planner is compensated.
  2. Investing

    Everything You Know About Investor Fees

    Investment fees are one of the main determinants of investment returns, and over time, minimizing fees tends to maximize performance. Use this guide today.
  3. Personal Finance

    Watch Out for "Junk" Mortgage Fees

    So many fees are tacked onto a mortgage, that it's easy to pay more than you have to.
  4. Personal Finance

    The Ins and Outs of Bank Fees

    These service charges could nickel-and-dime you right out of your nest egg.
  5. Investing

    Are Hidden Fees Eroding Your Participants’ Return?

    Plan sponsors need to know the fees associated with their plan to determine if they are reasonable.
  6. Personal Finance

    Cut Your Bank Fees

    Find out how to get the bank to pay you for using their services, not the other way around.
  7. Investing

    Understanding Real Estate Commissions: Who Pays?

    When you set out to buy or sell a house, one factor worth considering is the real estate agent's fees.
  8. Managing Wealth

    How Foreign Transaction Fees Work

    Using a credit card when you travel can be costly. Here's what you need to know about foreign transaction fees – plus tips on making purchases abroad.
  9. Retirement

    The Hidden Fees in 401(k)s

    Learn about the conspicuously disclosed fees that lurk within your 401(k) investments.
  10. Financial Advisor

    What Hiring a Financial Advisor Costs in 2016

    When it comes to the price tag on a financial advisor's services, transparency is often lacking. That's why it's important to do your homework.
Trading Center