Question: When is a real estate broker able to lawfully pay a finder’s fee to an unlicensed finder?

Answer: A finder is entitled to a fee as an unlicensed individual when they locate, place, introduce, or deliver names of prospective clients to a broker or principal.

A finder providing referral services in California may, for a fee:

  • find and introduce parties;
  • provide referrals on an occasional and nonrecurring basis; and
  • be employed by either principals or brokers.

Any other activity, such as negotiating or providing property information disclosures, needs to be conducted by a real estate licensee, as they are both soliciting and negotiating. Unless licensed, an individual who enters into negotiations such as supplying property or sales information cannot collect a fee for services rendered – even if they call it a finder’s fee. [Calif. Business & Professions Code §§10137, 10139]

Licensed brokers and sales agents owe fiduciary duties to the principals they represent. Fiduciary duties require licensees to perform on behalf of their client with the utmost care, honesty and diligence.

But an unlicensed finder has no fiduciary duty to clients. Rather, their function as an “agent” is limited to identifying, and referring potential real estate participants to brokers, agents, or principals in exchange for the promise of a fee. They are locators and nothing more.

Therefore, a finder lacks legal authority to participate in any aspect of property information dissemination or other transactional negotiations for a fee. [Bus & P C §§10130 et seq.]

Finder’s Fee Agreement

A broker needs to make the relationship with a finder official by filling out a Finder’s Fee Agreement. [See RPI Form 115]

This employment agreement specifies:

  • the identity of the client;
  • the description of the real estate involved;
  • the compensation due to the finder; and
  • how the referral fee is earned.

The line between allowable licensed and unlicensed duties may be blurry to some, but it’s an important barrier to get right. An unlicensed individual who engages in brokerage activities without a license is subject to:

  • a penalty of up to $20,000; and/or
  • a six-month prison term. [Bus & PC §10137, 10139]

Further, a broker who permits an unlicensed employee to solicit clients or perform any other type of “licensed” work beyond solicitation for a referral, may have their license suspended or revoked. [Bus & P C §§10131, 10137]

Before paying a finder’s fee, follow these guidelines to ensure the fee is lawfully earned and paid.