Holdover Period: Guide to Buyers and Sellers

What is the holdover period in real estate?

The holdover period is specified in the holdover clause or provision under the commission section of the buyer representation agreement or listing agreement. It is the period of time that the agreement between the buyer or seller and the brokerage is expired or terminated, but the buyer or seller may still have the obligation to pay the commission to the aforesaid agent.

How long is a holdover period in real estate?

The holdover period is typically between 2~3 months in Ontario. It is negotiable and is specified in the buyer representation agreement or listing agreement.

When and how does this holdover provision apply to the buyer?

To the buyer, the holdover clause applies to the following situations.

The buyer is introduced or shown to the property by the previous agent, or the buyer has placed an offer via that agent to the property. There are no further activities until the buyer's contract with that agent is expired. 

Later on, the buyer makes the purchase of that same property, and the time of the purchase is within the holdover period time. Then the buyer owes the commission obligation to the original agent who served the buyer.

The purchase transaction does not necessarily have to be completed during the holdover period, as long as the offer is accepted during the holdover period.

Therefore, the same property introduced or shown, the timing, and the accepted offer are the 3 criteria to be considered.

How to calculate the commission over the holdover period?

Though the buyer is obligated to pay the commission to the original agent, it is not always necessary to pay the previous agent at the full commission listed in the agreement. 

Another condition applies, such as whether a new agent is involved during the buyer’s resumed purchase activities.

If the buyer approaches the seller directly and buys the house directly without a new agent involved, the buyer owes the full commission, as agreed upon, to the original agent.
In another scenario, if the buyer approaches the seller via a new agent, the buyer still needs to pay the deficiency of the commission to the original agent. 

More specifically, let’s take an example.

In the original agreement with the previous agent, 2.5% commission is the agreed-upon rate. In the new agreement with the new agent, the commission rate of 2.5% or more is the agreed-upon rate. In this situation, the buyer has no commission obligation to the previous agent.

However, in a new agent representation agreement, if the commission rate or the equivalent amount is less than that of the original agreement, the buyer is obliged to pay the deficiency of commission to the previous agent.

In short, the holdover clause requires the buyer to pay whichever number is higher between the two commission amounts, and the amounts are allocated as previously described. The previous agent receives only the difference between the two amounts if the first commission amount is higher than the second agent’s commission amount.

Other commission obligations under the commission clause

The buyer agent commission is normally paid by the seller. However, if the commission agreed upon in the buyer agency contract with the buyer is higher than the commission paid by the seller, the buyer is still obliged to pay the deficiency of the commission amount.

If the seller doesn't pay any commission, the buyer needs to pay the full commission as stipulated in the buyer agency contract.

The buyer owes the commission obligation to the buyer agent if the transaction was not completed, which is due to or attributable to the buyer’s default or neglect.

Holdover period in the seller representation agreement

In the seller representation agreement, the essence and elements of the holdover period are quite similar to that of the buyer rep agreement. It is a commission protection period, in this case, for the previous seller agent.

If the potential buyers are introduced or shown a property during the previous listing period, and then the offer is accepted by the seller during the holdover period, the seller still owes the commission to the previous seller's brokerage.

The seller’s commission liability to the previous agent also depends on the involvement of a new listing agent. If there is no such new listing agent, the seller owes the calculated amount on the original listing agreement to the listing agent. If there is a new listing agent signed with the seller, the commission is reduced by the amount paid by the seller under the new agreement.

e Commission Rebate Short Guide

What is a commission rebate or a cashback?

A commission rebate, also known as a home buyer's cashback, is a rebate from a buyer agent to a home buyer. The agents refund a portion of the commission they receive from the seller to the buyer. 

Who pays the real estate commission?

Commission to the buyer agent is most commonly paid by the seller. In most cases, the seller pays the buyer’s agent at 2.5% of the home purchase price in GTA in the current market. There are some exceptions, in rare occasions, the buyer still owes the commission obligation when the seller pays less than 2.5% commission or even doesn’t offer any commission to the home buyer agent. 

Does a commission rebate mean a discounted service?

Not necessarily, it varies with different agents/brokerages. 

The realtor service needs to comply with the industry standards, codes, and rules. 

How can you get the best or highest commission rebate?

The more appropriate description would be the most appropriate or fairest cashback you could negotiate. 

Is cashback to a home buyer legal?

Yes, according to the Real Estate and Business Brokers Act (REBBA 2002), a rebate or similar compensation may be provided to a brokerage’s client or customer (i.e., buyer or seller) that is a party to the trade in question, but registrants cannot provide any form of compensation to an unregistered third-party for activities that would be considered to be in furtherance of a trade. 

In short, rebating money to a buyer is legal but making a referral payment to an individual for providing a lead or referral is illegal.

Keeping a cashback agreement in writing is an appropriate practice.

Is Commission Rebate Taxable

Here is a related topic from CRA for your reference: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-re…

It is recommended that you consult with qualified professionals on this issue.

Does the commission refund affect the land transfer tax?

No, The land transfer tax is based on the home purchase price. Any cashback-related tax issue should be consulted with accredited professionals such as accountants.

How to choose an appropriate cash-back realtor?

The house purchase or sale is a large stake to most families, and the associated $ amount in GTA can easily surpass the revenue of most small enterprises. 

Therefore, it makes more sense, that you, as a seller or buyer, actually hire a partner or professional manager to run the project for you instead of hiring a mediocre customer representative to provide the service such as showing and making an offer. 

The whole process of either home buying or home selling is a system, complex and intertwining. Thus it requires your partner to possess the business acumen, and the similar capacity to run a business, besides the realty knowledge.

Your partner also needs to have the capability to provide a thorough analysis and reasonable predictability,  he needs to help you manage the uncertainties, the changes, and the risks, and he needs to provide advice on your current and future planning and help you set up priority among many considerations.

To maximize your investment, he needs to formulate strategies and tactics before the negotiation and create and catch the opportunity once it arises. 

Obviously, you need to consider the integrity and cost of hiring your potential partner as well. The effective balancing among the 3 components ( your partner’s capability, integrity, and cost) is the key to making a successful deal beneficial to both parties.

An easy call at 647-914-7337 to set up an appointment with me at my brokerage office in Markham. Let’s exchange your opinion, views, and my philosophy on how to run the project as your trusted partner and how I can maximize your interest and relieve your worries.