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.