If I sell my property after my listing agreement with the brokerage ends, do I still have to pay a commission to the brokerage?
Your question touches on holdover clauses, which are an important part of many listing agreements. The holdover period is a defined amount time following the expiration of a listing agreement during which the listing brokerage would be entitled to receive a commission if the property were sold to someone introduced to the property during the listing period. This could be 30 days – it could be 300 days; it just depends on what you and your representing brokerage agreed to.
When it comes to holdover clauses, you should start by reviewing the proposed agreement terms with your listing brokerage. Typically, a holdover period in a listing agreement applies if the buyer viewed or was introduced to the property in any way during the time in which your listing agreement was active.
Buying a home is a big decision, and it can sometimes take time for a buyer to present an offer. If the brokerage found the buyer, but they happen to finalize the transaction after the listing agreement expired, the holdover is intended to recognize the need for the listing brokerage to be compensated for services leading to the sale of the property. For example, let’s say, someone toured the home during an open house within the listing period and then decided to buy the property after the listing expired, but within the holdover period, commission would be owing to the listing brokerage and the buyer brokerage, if that was a term of the listing. This protects the brokerage from a seller and a buyer who collude to get around paying commission by waiting to the expiry of the listing. We’ll talk about the seller’s rights and obligations in a minute.
Now, in the same way that a brokerage wants to be paid for the work they did to find a buyer, the seller might not want to pay the brokerage for a buyer they found themselves. For example, sometimes, a seller will have already discussed selling their home with a potential buyer that expressed interest before it was listed (maybe a neighbour, friend or relative who always wanted the home). In such a case, the seller will want to discuss what, if any, commission is to be applied in the event the property is sold to that buyer. It might be an exclusion from the listing agreement, or it might have a different commission structure attached to it, if that particular person buys the property.
For readers preparing to list a property, I recommend you ask your salesperson to walk you through exactly how the listing agreement will work, your rights and obligations as the seller, as well as those of the salesperson and the listing brokerage. If you still have questions, you may wish to seek counsel from your real estate lawyer before you sign an agreement.
If you have a question for Joe about the home buying or selling process, please email firstname.lastname@example.org.
Joseph Richer is Registrar of the Real Estate Council of Ontario (RECO). He is in charge of the administration and enforcement of all rules that govern real estate professionals in Ontario. You can find more tips at reco.on.ca, follow on Twitter @RECOhelps or on YouTube at http://www.youtube.com/RECOhelps.