Let me preface this by saying official information on the mechanics of Diablo III so far is scarce. Things written here may be proven to be inaccurate in the future, for that I apologize in advance. I will try keep this as up to date as possible, with all the latest changes implemented by blizzard, as well as any additions which arise through players finding new methods for farming.

That being said, I am confident in my understanding of the working of magic finding in Diablo III so far having spent well over 100 hours (of a total 160 played) researching - this involved paying for some of the latest farming methods, being highly active on many forums, as well as coming up with a few farming methods of my own. I intend to make my next guide on the various methods of farming (items/gold/specific items) so please keep an eye out for that.


The basics:
-Magic find is NOT the chance for higher stats to roll. It is simply the chance that higher QUALITY items will drop. Quality refers to [normal - magic - rare]
-Magic find is not capped, however there is a physical limit (due to spawnable affixes)
-Magic find is subject to diminishing returns (confirmed by bashiok)
-MAGIC FIND IS A GOOD THING



Diminishing Returns?
-After a fixed point, your magic find increase is not linear.
-For example, that point may be at 100% mf, after which it begins scaling at 1.0 : 0.9, reducing in its effective value the higher and higher the stat goes.
-This is so rares, uniques and sets are not OVERfound.



Item Generation
-The golden rule: All variables are calculated at the time of monster kill.
-This means that at the exact moment of killing a monster, the item base, quality and all affixes including their specific values are generated.



The difference between having 0% magic find and 100% magic find.
Assuming no loss due to diminishing returns before 100% (no tables have been released on this yet)
-A champion mob may have a 2% chance to drop a rare item.
-Having 100% magic find means that mob now has a 100% INCREASE in it's chance to drop a rare item - now 4%



Identifying items with higher magic find %
-Is a waste, I have heard of people saving up an inventory full of unidentified items to ID all at once with their mf gear on
-Various mods are predetermined at time of item generation (when it drops), regardless, as said in the first section, your magic find% will have no bearing on the mods that this item rolls - having the higher magic find% simply gives you a better chance to FIND a rare that has a CHANCE to be good.



Magic find in co-op games
Simple - Magic find is averaged across the players in a game.
Player 1 has 100% magic find
Player 2 has 50%
Player 3 has 0%
and Player 4 has 70%
The GAME total magic find is now 54%.



Follower Magic Find
-Followers can be equipped with magic find gear and this counts toward your (character) magic find, however it is at with reduced benefits - any magic find equipped on your follower is reduced by 80%.
-50 follower magic find = 10% actual bonus magic find.



High magic find does not directly relate to better items, it gives you a higher chance of finding more desirable QUALITY items.



Nephalem Valor
-75% free magic find/gold find
-Also passively increases the NUMBER of drops from bosses (no exact figures released, but this was blue posted)

The complete list of bosses with a 'bonus pool' for Nephalem Valor is as follows:

Act I
Skeleton king. Araneae. The Warden. Butcher.

Act II
Magda. Zoltun Kulle. Belial.

Act III
Ghom. Siegebreaker Assault Beast. Cydaea. Azmodan.

Act IV
Rakanoth. Diablo.

You'll note that, with the exception of the Warden, the main thing these all have in common is that they have a dedicated 'boss chamber' in which the fight occurs, which you cannot leave once the fight begins, which makes them easy to identify.


Quest Drops
-Quest Drops are similar in both mechanics and function to the quest drop system in diablo 2 - however, to my knowledge, this time it is not exploitable.
-Upon killing a boss for the first time as part of story progression, you receive much higher drop rates, often 2-3 rares even with no magic find gear or stacks of nephalem valor.
-Exact figures are not known, however the increase is easily notable.


Thanks to neonfire@jsp and westonn@jsp for the fg to red+bold this thread

This post was edited by hapycmpr on Jun 4 2012 03:17am

Thanks for this man!! It helps me understand the magic find concept tons more

Very nice dude. This seems like an awesome introductory to the concept for those that are new to it. Even for me, I have never seen the specific list of bosses affected by NV stacks. Thanks!

This post was edited by insidnious on May 31 2012 03:31pm

Thanks very much, you have no idea how tedious killing Iskatu 50 times with 5 valor stacks and 50 times without gets
Edit: especially to learn that Valor doesn't even affect his drops :\

This post was edited by required on May 31 2012 04:04pm

i didn't think MF was averaged anymore.... wasn't that changed in beta?

Nope, this was one of the harder ones to test but results have proven it this way. Individual loot system does make things harder to compare, but I'm 95% positive that the magic find is averaged.

i don't see how you can post something as fact that is percent based....based on tests you've done yourself.

even if you have 1000 MF and do 1000 runs it is still mathmatically possible for you to get no blue drops

Here was the basis of my testing this idea:
Farming resplendent chests:
I use 0% magic find, friend uses 200% - across a span of 350 chests I tally the exact number of magic items/rares/whites for BOTH people.
I use 100% magic find, friend uses 100% - across a span of 350 chests I tally the exact number of magics/rares and whites for BOTH people.

Results were within 5% of each other in all sections.

Farming champion mobs:
Exact same method - this time a little more disparity - 7% was the highest variable, and that was in favor of more more rares with 0% magic find.

Please don't tell me my time farming 350 champion mobs in hell while struggling wasn't worth it