Your real estate agent invests time and effort to market your home to find the best buyer possible. If the agent successfully finds you a buyer for your home, they earn a commission on the sale. But what happens if the listing agreement with your agent expires, and you receive an offer from a buyer after your agent is out of the picture?
Well, you may still be on the hook to pay commission depending on the terms of the protection clause in your contract.
Top real estate agent Rachael Barach, who has over 17 years of experience selling homes in Broward County, Florida, tells us that protection clauses are commonplace in listing agreements; however, sellers rarely inquire about their meaning. Below we’ll tell you all you need to know about the protection clause in real estate, including under what circumstances this clause is applicable or void.
What is a protection clause?
When you hire a real estate agent, you’ll sign a listing agreement detailing the terms of service, commission (usually around 5.8%), and contract length. Most contracts are an “exclusive right to sell listing agreement” that gives the real estate agent the sole rights to market the property, list the property on MLS, and receive the commission if the sale closes in a determined time frame.
The listing agreement also includes a protection clause, also known as a “brokerage protection clause, “safety clause,” “extension clause,” or “tail provision.” The protection clause states that if a buyer who the listing agent introduced to the property purchases the property after the listing agreement expires, the seller still must pay the agent a commission.
Protection clause windows range 30 to 45 days on average
Protection clauses include an expiration date that’s typically 30 to 45 days after the listing agreement expires. Some exclusions may apply, which is why it’s so important to read the fine print and ask questions before signing the contract.
An exclusion list voids the protection clause for designated buyers
In many cases, you may include an “exclusion list” in your listing agreement with the names of prospective buyers you’ve connected with before bringing on the agent. If a family member or friend is potentially interested in your home, it’s usually a good idea to add them to an exclusion list. This way, you won’t owe commission if the person decides to purchase your home after the listing agreement with your agent expires.
You can void a protection clause if the listing agent neglected contractual obligations
If you can prove that your agent was negligent or did not hold up their end of the contract by sufficiently marketing your property or doing their job, you may be able to void the protection clause. Barach shares that some reasons could include an agent’s failure to operate honestly or represent your best interest in the transaction.
She notes that in many cases, the cost of litigation often outweighs the commission. However, it may be worth looking into if you feel you have a strong case.
Scenarios where a protection clause may apply
- A buyer your agent introduced you to makes an offer a week after the listing agreement expires.
- You meet someone at the grocery store and mention your home is for sale during the time of your listing agreement; the person decides to purchase your home.
- After the listing agreement with your agent expires, you re-list your home for sale by owner (FSBO), and a buyer who attended the open house your agent threw makes you an offer.
Scenarios where the protection clause may not apply
- A mutual friend on your exclusion list makes you an offer on your home after the listing contract with your agent expires.
- You re-list your home with a new listing agent and sell your house to a buyer they introduce you to.
- You take your home off the market for a year. When you re-list your home, you sell it to a buyer who had previously made you a low offer when you were working with your listing agent.
If the protection clause applies, the agent may still help facilitate the sale
If you receive an offer from a buyer introduced to you by your former agent within the protection clause window, you’ll owe the agent commission. In this scenario, it’s probably worth renewing the listing agreement so you can get the agent’s assistance with negotiations, paperwork, and closing.
According to Barach, if you have a quality agent, they should help walk you through the negotiations after securing a buyer and after the listing agreement has expired. After all, you are paying them either way.
Renewing the listing agreement does not require you to pay more money to your agent; you’ll just owe them the commission agreed to in the contract.
You can negotiate the protection clause before you sign
Most real estate agents include a protection clause in their contract to ensure they earn commission on their hard work. As the seller, you should thoroughly read your listing agreement and negotiate any timelines or dates you think are unfair upfront. Remember to add any potential buyers you know to the exclusion list so you can void the protection clause if you sell to one of them.
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