Brokers and Finders are NOT the same thing.
The distinction is important when it comes to collecting money and limiting liability.
Finders, for instance, are exceptedfrom California’s real estate licensing requirements, and other regulations governing the broker-client relationship. Thus, a finder need not be licensed as a real estate broker.1 Indeed, it maybe better not to be licensed if one desires to only be a “finder.”
In California, the courts have long permitted finders to recover fees for their services in real estate transactions without first obtaining real estate licenses.2
A “finder’s” employment is limited. “Finders” are persons who bring together others (including buyers, sellers, borrowers, and lenders) so that they may independently negotiate for and eventually enter into contracts.3
The difference between a finder and a broker turns on whether the intermediary/finder has been invested with authority to participate in the negotiations. Despite the broad sweep of the statutory language defining brokers, the courts have consistently held that a person who does no more than introduce the two parties, without further participation in the negotiations,does not need a broker’s license to recover a commission. The California Supreme Court has specifically held that the legislature did not intend to require the licensing of finders, because a person who does no more than introduce parties does not need the knowledge and experience required by the licensing statutes. ( The same rule might not apply to attorneys in all cases! One appellate court has even held that a non-real-estate-licensee attorney who introduces the parties, participates in meetings and negotiations, and advises the parties, is not a finder. [And you thought we had better lobbyists…])
Generally, any activity beyond the mere introduction of the parties – makes the finder, a broker.
For example, a person who sought to find a tenant and to make arrangements for the construction of a building for the tenant to occupy, was within the statutory definition of a broker, as was one who presented a “package” describing a real estate development to several people and who conferred with engineers and surveyors on the development. The distinction between a finder (who need not be licensed) and a broker or salesperson (who must be licensed) frequently turns upon whether the finder has been given authority or has undertaken duties beyond merely bringing the parties together.4
Does this mean that no communication of information before introducing the parties would disqualify someone as a finder? Not necessarily.
Generally, providing information after introducing the parties will disqualify someone as a finder.
The only exception to the rule that activities after the introduction will make a finder a broker is the situation where the activities are only peripherally connected with the transaction and do not amount to participation in the negotiations. For example, a person was held to be a finder and entitled to a commission where the actual negotiations were conducted by the buyers and the seller’s attorney, even though the finder gave some assistance in the negotiations, obtained some readily available information, discussed the progress of the negotiations, and generally tried to be helpful. (This one case has shaking my faith in the General Rule Of Punishment that “No Good Deed Goes Unpunished.”).
The distinction between a finder and a broker is also significant in determining whether the intermediary/finder in a transaction stands in a confidential relationship to one of the parties to the transaction, and thus owes the principals “fiduciary duties.” A mere finder does not such duties to any party to the transaction. A finder’s only duty and power under his or her contract of employment is to find and introduce a prospective purchaser or a prospective seller to his or her employer. A finder does not have the power to negotiate the terms on which his or her employer or employers will deal.5 Since a finder is not an agent, and is in business for himself or herself; s/he owes no obligation to any principal.6 Thus, no fiduciary relationship is created between a finder and his or her employer. A finder may well be employed as a finder by both buyer and seller (which we normally characterize as a “dual agent.”7
Because of the “no fiduciary duty” rule, however, the courts are reluctant to find that a licensed broker can act as a mere finder. Thus, prudent brokers and salespersons should not rely on the finder’s exception from the licensing requirements. In other words, an agent/broker will likely find “fiduciary” liability on any transaction – even when the involvement is “mere introduction” – at least when the agent/broker is trying to get paid for it.
And remember, the statute of frauds is applicable to a finder’s agreement, so, a finder is entitled to compensation only if the agreement is in writing.
1. Tyrone v. Kelley (1973) 9 Cal. 3d 1, 9, 106 Cal. Rptr. 761, 507 P.2d 65.
2. Shaffer v. Beinhorn (1923) 190 Cal. 569, 573-574, 213 P. 960; Tyrone v. Kelley (1973) 9 Cal. 3d 1, 8, 106 Cal. Rptr. 761, 507 P.2d 65; Grant v. Marinell (1980) 112 Cal. App. 3d 617, 619, 169 Cal. Rptr. 414; but see Civ. Code Section 1624; Phillippe v. Shapell Industries (1987) 43 Cal. 3d 1247, 1258 n.6, 241 Cal. Rptr. 22, 743 P.2d1279, cert. denied, 486 U.S. 1011.
3. Tyrone v. Kelley (1973) 9 Cal. 3d 1, 9, 106 Cal. Rptr. 761, 507 P.2d 65.
4. Tyrone v. Kelley (1973) 9 Cal. 3d 1, 9, 106 Cal. Rptr. 761, 507 P.2d 65.
5. Batson v. Strehlow (1968) 68 Cal. 2d 662, 669, 68 Cal. Rpt r. 589, 441 P.2d 101.
6. Zalk v. General Exploration Co. (1980) 105 Cal. App. 3d 786, 793, 164 Cal. Rpt r. 647.
7. McConnell v. Cowan (1955) 44 Cal. 2d 805, 811, 285 P.2d 261.