Why the fine print matters!
Holdover clauses are an important, and sometimes overlooked, component of representation agreements.
FOR SELLERS
In a Seller Representation Agreement, the holdover clause ensures that if someone who was introduced to the property during the listing period ends up purchasing it after the agreement expires, the listing brokerage may still be entitled to a commission.
Here’s how it works:
- If the buyer was introduced to the property during the listing period, whether through a showing, marketing, or any other form of communication, and the property sells to them within the specified holdover period (commonly 30-90 days after expiry), commission may still be owed.
- If the property is not re-listed with another brokerage, the original brokerage is entitled to the full commission agreed upon in the expired listing.
- If the property is re-listed with another brokerage, the original listing brokerage is entitled only to the excess commission, if any.
Example: If the original agreement was for 3% commission and the new listing is for 2%, the original brokerage is entitled to the 1% difference. If the new listing is also 3% (or higher), the original brokerage receives nothing.
FOR BUYERS
Holdover clauses in Buyer Representation Agreements operate similarly. If a buyer is introduced to a property, whether in person, by link, photo, or even just an address, during the active agreement period and ends up purchasing that property after the agreement has expired, commission may still be payable.
- If the buyer does not engage another agent, they are typically responsible for paying the full commission outlined in the original agreement.
- If they do sign a new agreement with another brokerage, the original agent is only entitled to any excess commission (the difference between the new agreement and the original one), if such a difference exists.
CANCELLED AGREEMENTS
If a listing or a buyer representation agreement is cancelled before its expiry, the holdover period begins immediately and extends for the entire remaining time plus the holdover duration.
Example: If the agreement is cancelled 30 days before it was set to expire, and the holdover clause is 60 days, the effective holdover period becomes 90 days from the cancellation date.
