Finder’s Fees: How They Work and What You Can Charge

A finder’s fee is money paid to someone who introduces two parties to a business deal, with the finder’s role limited to the introduction itself. It shows up in real estate, recruiting, mergers and acquisitions, and private securities offerings, and while rates commonly run anywhere from 5% to 35% of transaction value, the amount you can actually charge or collect depends on the industry, the state, whether securities are involved, and above all whether the arrangement was put in writing before the introduction happened.¹

There is generally no legal obligation to pay a finder’s fee without a binding written agreement spelling out the terms. A finder who makes a valuable introduction on a handshake may have no way to collect.

What a Finder Actually Does

The finder connects the parties and steps back. They don’t negotiate price, structure the deal, run due diligence, advise either side, or handle funds. Once the introduction is made, the buyer and seller (or issuer and investor) take it from there. Compensation can be cash or, in informal arrangements, a non-monetary gift, and either side of the transaction can pay it.

That narrow definition carries weight. The further a finder’s actual work drifts from pure introduction, the greater the chance a court or regulator will reclassify them as a broker, and brokers face licensing and registration rules that finders don’t.

How Much a Finder’s Fee Is

Finder’s fees are negotiable. A commonly cited benchmark is 5% to 35% of the transaction’s total value, though that range is wide enough that the industry context matters more than the headline figure.¹

In real estate, finder’s fees paid to unlicensed individuals typically fall between 5% and 35% of the seller’s agent commission, not the sale price itself. Licensed agents who refer business to other agents often take around 25% of the selling agent’s commission.²

The Lehman Formula

For business acquisitions and investment banking, the most widely recognized structure is the Lehman Formula, developed by Lehman Brothers in the 1960s. It applies a descending percentage to the transaction value:

5% of the first $1 million
4% of the second $1 million
3% of the third $1 million
2% of the fourth $1 million
1% of everything above $4 million

A $5 million deal generates a $150,000 fee under this scale.³ Because the original numbers haven’t kept pace with inflation, middle-market deals often use a Double Lehman that doubles each tier (10% of the first million, 8% of the second, and so on).⁴

Small Business Acquisitions and Success Fees

In the search fund and private equity world, finder’s fees are often called success fees. The Lehman structure is common, but deals also use flat-percentage arrangements or retained-fee agreements where the finder collects a monthly retainer that gets credited against the final success fee at closing. Fees are usually paid in cash at closing, but when a deal includes earn-outs or seller notes, a portion of the fee may be held back and paid only when the seller actually receives those contingent payments.⁵

Finder or Broker: Where the Line Falls

The single most consequential issue in this area is the line between acting as a finder and acting as a broker. Finders introduce. Brokers negotiate, advise, and bring deals to closing. Brokers are subject to licensing and registration; finders generally are not. Crossing the line without a license can void the fee, trigger fines, or in some states expose the finder to criminal penalties.

New York’s Court of Appeals set the standard in N.E. Gen. Corp. v. Wellington Adv., Inc. (1993): a finder is required only to “introduce and bring the parties together, without any obligation or power to negotiate the transaction,” while a broker “must ordinarily also bring the parties to an agreement.”⁶ Courts examine the quality and quantity of services actually performed. If the real work went beyond an introduction, the person is a broker, no matter what the contract calls them.

The consequences in real estate are stark. New York Real Property Law § 442-d bars anyone who is not a licensed broker or salesperson from suing to recover compensation for real estate services, and courts have applied that bar even when the contract calls the services those of a “finder.”⁷ In Futersak v. Perl (2011), New York’s Appellate Division reversed a trial court award and denied an unlicensed plaintiff a 15% share of net profits from a property sale.

California adds criminal exposure. Under Business and Professions Code §§ 10137–10139, an unlicensed person who performs activities requiring a real estate license faces fines of up to $20,000 and up to six months in jail. The broker who permits it can have their license suspended or revoked.⁸

Securities Finders and the SEC Gray Area

Securities law layers on more complexity. Under Section 15(a) of the Securities Exchange Act of 1934, anyone who acts as a broker in securities transactions must register with the SEC. There is no formal federal finder exemption, which has left the area in a long-running gray zone.

The SEC treats transaction-based compensation as a hallmark of broker activity. An unregistered finder who takes a commission tied to investor capital commitments is generally viewed as an unregistered broker-dealer.⁹

The SEC’s 2013 action against Ranieri Partners LLC shows what that looks like in practice. William Stephens, an independent consultant, solicited over $500 million in capital commitments for Ranieri’s private funds while receiving a 1% commission. His activities went beyond introductions: he distributed private placement memoranda, urged investors to adjust portfolio allocations, and analyzed fund strategy and performance. The SEC found he had operated as an unregistered broker. Stephens was permanently barred from the industry and ordered to pay more than $2.8 million in disgorgement, waived due to inability to pay. Ranieri Partners paid a $375,000 penalty. The firm’s managing director, Donald Phillips, paid $75,000 and accepted a nine-month supervisory suspension for failing to oversee Stephens.¹⁰

In October 2020 the SEC proposed a conditional exemptive order creating two tiers of finders. Tier I finders would have been limited to one capital raise per year and to providing contact information. Tier II finders could have distributed materials and arranged meetings. The proposal was never adopted and has since lapsed.⁹ As of 2026, the SEC still has not finalized any finder exemption. In July 2025, SEC Chairman Paul Atkins and Commissioner Hester Peirce publicly pushed for progress, with Peirce acknowledging the “onerous regulatory framework” applied to finders.¹¹ In March 2026, De Silva Law Offices submitted a formal rulemaking petition urging the SEC to revive the 2020 proposal, but no draft rule has followed.¹² Until the SEC acts, anyone receiving transaction-based compensation for connecting issuers with investors should assume broker-dealer registration is required.

The M&A Broker Exemption

Congress has provided one area of clarity. In March 2023, the Consolidated Appropriations Act codified an exemption under Section 15(b)(13) of the Exchange Act for M&A brokers facilitating change-of-control transactions in privately held companies. The target company must have less than $25 million in EBITDA or less than $250 million in revenue. The intermediary cannot conduct public offerings, take custody of funds, sell to passive investors, or bind the parties.⁹ In May 2024, the North American Securities Administrators Association (NASAA) voted to amend its model state rule to align with the federal exemption.¹³ The federal exemption does not preempt state law, so intermediaries still need to check their state’s requirements.

California’s Finder Registration

California is one of the few states with a specific statutory path for securities finders. Under Corporations Code § 25206.1, a natural person may register with the Department of Financial Protection and Innovation (DFPI) for a $300 filing fee and operate as a finder who introduces accredited investors to issuers. The statute caps aggregate transaction value at $15 million and bars the finder from negotiating terms, advising on valuation, conducting due diligence, or handling funds.¹⁴ Each introduction requires a signed written agreement disclosing the finder’s compensation, any conflicts of interest, and a representation that the investor is accredited.¹⁵

Real Estate Fees, RESPA, and the FARE Act

Beyond state licensing bars, the federal Real Estate Settlement Procedures Act (RESPA) prohibits kickbacks and unearned fees in residential mortgage transactions. No one can give or receive a “fee, kickback, or thing of value” for a referral tied to a settlement service unless substantive work was actually performed.¹⁶

New York City enacted a significant change to broker fees with the Fairness in Apartment Rental Expenses (FARE) Act, which took effect on June 11, 2025. The law requires broker fees to be paid by the party that hired the broker, which in rental transactions is almost always the landlord or property management company rather than the tenant.¹⁷ StreetEasy projected that the average upfront cost of signing a new lease would drop by roughly 42%, from about $12,942 to $7,537, because tenants would no longer have to cover broker commissions that typically ran 12% to 15% of annual rent. Tenants can still hire and pay their own independent broker, and landlords can charge for credit and background checks.¹⁸

The Real Estate Board of New York (REBNY) challenged the law. Judge Ronnie Abrams denied REBNY’s request for a preliminary injunction on June 10, 2025, allowing the law to take effect, and denied a further injunction pending appeal on July 10, 2025, writing that REBNY had “not demonstrated a strong likelihood of success on the merits of their appeal.”¹⁹ The appeal is ongoing. Some analysts have suggested landlords may raise base rents to recoup costs that previously fell on tenants.

Making the Agreement Enforceable

The most common way people lose a legitimate finder’s fee is by failing to put the arrangement in writing before making the introduction. In states like New York and Massachusetts, the statute of frauds requires any agreement to pay compensation for finding, brokering, or introducing parties to be in a signed writing. Oral agreements are unenforceable.¹

Even written agreements fail when they are vague. In Alkholi v. Macklowe Investment Properties (S.D.N.Y. 2020), an email chain mentioning a 2% fee was not enough to create a binding agreement because the writings never clearly identified which party owed the money.

A workable finder’s fee agreement covers:

The scope of engagement, including the specific type of transaction and the finder’s limited role.
Compensation, including the fee structure, amount, and when payment is triggered.
A tail period requiring the company to pay the fee for a defined time after the agreement ends if a deal closes with someone the finder previously introduced. In StormHarbour Securities LP v. IIG Trade Opportunities Fund, a New York court upheld a tail fee of $3.41 million.²⁰
A non-circumvention clause preventing the parties from cutting the finder out after an introduction.
Confidentiality, term, and termination provisions.

Non-circumvention clauses are only as strong as their drafting. In Global Energy Consultants v. Holtec International (3d Cir. 2012), the court refused to enforce a non-circumvention agreement because of a “lack of definiteness in its terms.”²¹ A clearly drafted clause does the opposite work. In Schwartz v. Sensei, LLC (S.D.N.Y. 2022), the court enforced the clause and awarded 15% of the total transaction value, more than double the original 7% fee, because the liquidated damages clause was deemed a reasonable estimate of harm. In Antares Management v. Galt Global Capital (S.D.N.Y. 2013), the court allowed a finder’s claim to proceed where defendants had contacted investors the finder introduced in violation of a three-year non-circumvention clause; the plaintiffs alleged $30 million in lost fees.²²

Taxes on Finder’s Fees

Finder’s fees paid to individuals in the course of business are nonemployee compensation. A business that pays $600 or more in finder’s fees to a non-employee during the tax year must report the payment on Form 1099-NEC, Box 1, filed with the IRS and furnished to the recipient by January 31 of the following year.²³ Payments to corporations are generally exempt from 1099 reporting. For the recipient, fees reported on Form 1099-NEC are subject to self-employment tax.²⁴

Deductibility for the payer is not automatic. Transaction costs tied to an acquisition are generally capitalized, not immediately expensed. In Plano Holding LLC (T.C. Memo. 2019-140), the Tax Court disallowed a $1.5 million finder’s fee deduction taken by a plastics manufacturer that paid the fee on behalf of an institutional investor, finding the expense was not ordinary or necessary to the taxpayer’s own business.²⁵

The strongest protection for any finder, on either side of a deal, is paper: a written agreement signed before any introduction, contemporaneous records of the work done, and language that names who owes the fee and when it is earned. That is what makes a finder’s fee collectible.

1
Investopedia. Finder’s Fee: Definition, How It Works, and Example
2
Indeed. Finder’s Fee vs. Referral Fee
3
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4
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Hadley Capital. Finder’s Fee Agreements in Small Company Acquisitions
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Jonathan Cooper Law. The Critical Differences Between a Broker and a Finder in NY
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Jonathan Cooper Law. Why Some Finder’s Fee Agreements Aren’t Enforceable in NY
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First Tuesday Journal. When Can a Finder’s Fee Be Paid to Someone Who Is Unlicensed
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Vicente LLP. Broker-Dealers, Finders, M&A and Financings FAQ
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SEC. SEC Sanctions Ranieri Partners, Managing Director, and Unregistered Finder
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Prince Lobel. The SEC Will Soon Clarify Finder Law: Reading the Tea Leaves
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SEC. Rulemaking Petition Regarding Finders Exemption
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NASAA. NASAA Members Approve Amendments for Two Model Rules
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ABC7 New York. How the New FARE Act Will Impact Broker Fees in NYC
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Cole Schotz. FARE Act Now in Effect: What NYC Renters and Landlords Need to Know
19
The Real Deal. Judge Rejects REBNY’s Request for FARE Act Delay
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Love & Long Law. Enforceability of Tail Fee Provision in Engagement Letter
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Sadis & Goldberg. Non-Circumvent Agreements for Independent Sponsors
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Sher Tremonte. Antares Management LLC v. Galt Global Capital, Inc.
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IRS. Instructions for Forms 1099-MISC and 1099-NEC
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IRS. Reporting Payments to Independent Contractors
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The Tax Adviser. Tax Court: Finder’s Fee Deduction