Real estate transactions involve brokerage fees.
Buying and selling isn’t always easy, especially if the item in question is a large company or a valuable piece of real estate. Mortgage companies and other lenders may be eager to do business with a qualified buyer, but they can’t always make the phone calls and do the legwork to find a buyer. This is where an intermediary can come into the picture, and their financial reward for locating a buyer is often called the locator fee.
Companies can pay a recruiting firm to find well-qualified employees to fill open positions.
The brokerage fee is an amount of money, usually calculated as a percentage, given to the person who brings together the buyer, seller, and possibly the lender. For many transactions, this fee is negotiated in advance and put in writing before the sale is completed. Licensed real estate agents and mortgage brokers often charge a referral fee, which is simply another form of a brokerage fee. Some fees can be as high as 10% of the total sale price, but you are much more likely to earn around 0.5-1.0%. This can still be a hefty sum if the transaction is a business acquisition or an expensive land deal.
The brokerage commission concept is not limited to the real estate and corporate merger worlds. Some people make a living connecting motivated sellers with interested buyers on a smaller scale. For example, a collector of vintage toys might be looking for a specific item to complete their collection. If an intermediary who is familiar with the antiques business can locate the toy at an antiques mall, he or she may be entitled to a buyer or seller locating fee. This is usually an informal agreement between private parties.
The crux of the problem with this type of fee is that unless the intermediary is a licensed professional, such as a mortgage broker or real estate agent, neither party can feel obligated to pay a broker’s fee. In fact, in some jurisdictions, charging this type of fee is illegal. Also, some people might argue that a simple phone call or casual suggestion isn’t worth a percentage of the sale price.
Buyers and sellers are more likely to pay a brokerage commission if the intermediary clearly performed a service. Involved parties should check local laws to make sure they comply with the laws before charging or paying a locator fee. If legal, the fee should be discussed early in the process, or the only reward for the intermediary could be a pat on the back and a warm handshake.