When a real estate broker and client enter a formal relationship, the parties typically seal the arrangement by signing a written contract. Whether it's a Listing Agreement for sellers or a Buyer Representation Agreement for buyers, the client is looking to land a deal. But sometimes that doesn't happen during the time period covered by the contract. Yet even after the agreement expires, a client could still be on the hook for paying a brokerage commission. How? Through something called a holdover clause.
What Is A Holdover Clause?
This clause appears in most representation agreements and is there to protect the brokerage. It typically states that the client must pay the previously agreed-upon commission in a very specific circumstance and within a set time period after the broker and client part ways. The holdover period is the span of time after the expiration of the agreement and during which the commission may be payable.
Application For Buyers
The holdover clause kicks in when an agent introduces or shows a potential property to the client, but the client doesn't sign a purchase agreement until after the working relationship is over. This can happen for any number of reasons - a change of heart, a financing hiccup or the desire to strike a private deal. Whatever the reason, if the agent did the work of finding the property and the buyer ended up buying during the holdover period, the agent has the right to claim a commission.
Application For Sellers
For sellers, the determining factor consists of simple exposure of the listed property to the eventual buyer. It doesn't matter why the visitor viewed the property or by what means he or she was introduced to it. If the buyer had expressed prior interest and ended up buying after the listing expired, the agent can claim a commission.
The holdover clause typically won't apply if, during the holdover period, the seller lists with another brokerage that charges the same or higher commission - hence, no risk of undercutting the original agent.
There's no quick or easy way out of paying a commission. The good news: the holdover clause (as with other contractual terms) is negotiable. So, strike your best deal - both with interested parties and the brokerage.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
