The Royals' manager revealed he visited the French club and was immediately impressed by the Belgian's talent but conceded his side were priced out of a move for the forward.
He told reporters: "I would go to three games over the weekend starting on Friday night and one of them on this particular trip was at Lille.
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"[Eden] Hazard was just playing his first games in the team. He was still only 16, I think. I hadn’t gone there to see him, just to take in the fixture, but he stood out within minutes like the proverbial sore thumb.
"He could just go down the side of people — and on either side — and he had such great, quick feet.
"I earned my living then by wandering in search of players, and I might have asked about him, but no way was he available. I remember discovering Marouane Fellaini when he was still a teenager, too, and being quoted £7 million.
"These guys know when they have a special talent on their hands — you can’t turn up at a place like Lille and just go, 'We’ll take your best player.' It just doesn’t happen."
McDermott feels Hazard will have no problem adapting to the physicality of the Premier League despite his age and feels he has the right attitude to succeed at the top of the game.
He said: "Everyone in Europe knew what a talent he was going to be. How old is he? Just 21? He’s incredible.
"I went to see Chelsea’s game at Wigan on Sunday and he was terrific. Not just him but also Juan Mata, you saw the little interplays between the two of them — and then they could bring on Oscar too.
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"Going back to when I played you could, but in this day and age, thank God, there isn’t a place for it. Make one tackle now and you get booked. In a way that’s why the flair players thrive and that’s a good thing."
The 51-year-old admitted his side face a tough task when they travel to Stamford Bridge on Wednesday to take on Chelsea but is not playing especially for any player and is focused on getting a positive result for the Royals.
"But don’t think we don’t go there thinking we can win. We’ll have a way of playing," he said.
"I’m not going to give my team away, but we have always at Reading tried to take each game on its merits and try to do the best for our team. We will have a plan, we do that for everybody."