I've just gone up to L4 and have done a couple of negotiations already this season.

As far as I'm aware, you make a bid to any team that either has players on the negotiation list or directly to another club. When you place your bid, you lose a set amount of tokens for that duration. If the bid is accepted, you will lose those tokens permanently but if the offer is rejected or the club doesn't respond in the 24 hour deadline, you get those tokens back.

Quality of player I have seen is 5* (between 35-39 for me) for the vast majority. I assume it will be between 3* (lowest I have seen) and 5* (highest I have seen).

This is just based of what I have seen, read and done myself though. Others will have likely done this for longer and can give you more information.