Every REALTOR® and owner should enter into a listing agreement with the goal of selling the property. A firm deal in advance of a listing’s expiration, and at or above the expectations of price is the goal of an effective agent. However, things don’t always go to plan. For one reason or another, the listing may not sell during the contract dates. Sometimes, buyers need more time to understand the value, research easements, or even confirm the legality of a basement apartment. The result may be a true intention to purchase after the property expires. In situations like these, it’s important for both agents and sellers to understand the Holdover period, and how it may affect commissions payable.
What is the Holdover Period?
The Holdover period is a length of time (in days) following a listing’s expiration where the seller may owe commission to the listing agent if the property sells.
There is no prescribed period of time for a holdover, and many listings have a 0 day holdover. How long a holdover period exists for is at the discretion of the Seller.
This may sound confusing at first, or appear as a way for agents to “pull a fast one” on their clients, but understanding its purpose goes a long way towards normalizing relationships between professionals and home owners.
Let’s say, hypothetically, that agent John holds an open house for his listing at 123 Any Street. Suzy attends the open house and is taken on a tour of the listing from John. She likes it and wants to put in an offer. However, due to her current lease, Suzy is not yet in a position to buy. 30 days after the property expires, Suzy’s lease obligations are complete and she is now ready to buy the property. She approaches the Seller, who has since taken the property off the market. If agent John had a 90 day holdover period, the owner still owes him commission from the sale. This is true even if Suzy worked directly with the owner to purchase the property.
The Holdover period was introduced to recognize that Realtors® marketing efforts can sometimes have a delayed effect. Sales can occur after an explicit listing period due to factors beyond control.
Purchase with Another Brokerage
The standard OREA Listing Agreement (form 200) has a holdover clause that reads:
“The Seller further agrees to pay such commission as calculated above if an agreement to purchase is agreed to or accepted by the Seller or anyone on the Seller’s behalf within XX days after the expiration of the Listing Period (Holdover Period), so long as such agreement is with anyone who was introduced to the Property from any source whatsoever during the Listing Period or shown the Property during the Listing Period.
If, however, the offer for the purchase of Property is pursuant to a new agreement in writing to pay commission to another registered real estate brokerage, the Seller’s liability for commission shall be reduced by the amount paid by the Seller under the new agreement.”
Should the seller decide to re-list the property with another brokerage, and an original buyer enters into an agreement with that new brokerage, the Seller’s obligation to pay commission to the original brokerage is therefore reduced by the amount the Seller must pay the new brokerage.
This is why the holdover period is useless in most agreements. Should a seller decide to re-list the property with another brokerage, that new brokerage will be entitled to commission should the property sell. Even if the purchaser was originally introduced by the preceding brokerage, the Seller would no longer be responsible for paying commission to the old brokerage.
Termination vs Expiry
It should be noted that holdover periods only apply to expirations to listing agreements. When a Listing Agreement is terminated between a Seller and Brokerage, all overhanging obligations (such as Holdover agreements) are terminated with the listing.
Conclusion
Understanding the origin and the intention behind holdover periods can mean the difference between a smooth transaction and a litigation nightmare. Respecting the work that agents do to market and sell a property is important to promote safe, fair, and honest work.
