Sales Commission Vs. Finders Fee
In sales, a number of different elements come together to make a transaction happen. Besides the buyer and seller, agents who act on their behalves help negotiate deals and select sale or purchase opportunities from among a number of possible options. Sales commissions and finders fees are two forms of compensation that sales intermediaries may receive.
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Definitions
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A sales commission is a form of incentive pay that a sales agent receives for facilitating a transaction. The commission is usually a percentage of the sale price. Sales agents who earn commissions can work for the buyer or the seller.
A finders fee is a payment that someone earns after making an introduction or discovering an opportunity that results in a sale. The finders fee rewards an agent who initiates a relationship that leads to a sale, but may not actually participate in negotiations.
Amounts
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Sales commission and finders fee amounts vary by industry and from one transaction to another. In general, sales agents have standard rates for each type of transaction, though an individual agent may agree to accept less or ask for more in certain scenarios, such as especially complex or straightforward transactions. Real estate agents, for example, typically earn sales commissions between 3 and 7 percent. A typical finders fee is 1 percent or less, which reflects the finder's smaller role in a transaction.
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Contracts
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Sales agents who expect to receive sales commissions or finders fees may require the buyers and sellers they work with to agree to contracts that stipulate the amounts and terms of those payments. Without a contract, an agent may work to make a sale happen and receive no compensation, with no way to seek restitution. A sales agents may ask a client to sign an exclusive right to sell agreement, which guarantees the agent a commission if the seller engages in any transaction for the property.
Payment
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Sales commissions come out of the total sale amount and go first to the seller's agent. If the buyer has an agent who also earns a commission, the seller's agent may agree to split the commission. Finders fees may follow a similar path. In other cases, the buyer or seller may voluntarily give money to someone involved in the sale in the form of a finders fee, as a means of showing appreciation and incentivizing the finder to help facilitate future business.
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