A listing agreement contains a 'holdover clause' stating that if the property sells within 90 days after expiry to anyone shown the property during the listing period, the brokerage is entitled to commission. The seller lists with a new brokerage immediately after expiry and sells to a buyer who attended an open house during the original listing period. Who is entitled to commission?

Q: What is the correct answer to: A listing agreement contains a 'holdover clause' stating that if the property sells within 90 days after expiry to anyone shown the property during the listing period, the brokerage is entitled to commission. The seller lists with a new brokerage immediately after expiry and sells to a buyer who attended an open house during the original listing period. Who is entitled to commission?

The correct answer is Only the original brokerage due to the valid holdover clause. Option A is correct because the holdover clause creates a valid contractual obligation. The buyer attended an open house during the original listing period, establishing the original brokerage as the effective cause of sale. Since the sale occurred within the 90-day holdover period specified in the listing agreement, the original brokerage's introduction during the listing term entitles them to commission, regardless of which brokerage facilitated the final transaction. This principle protects brokerages' marketing investments and prevents commission avoidance.

Q: What background knowledge is needed for this Contracts & Agreements question?

Holdover clauses are contractual provisions in listing agreements that extend a brokerage's commission rights for a specified period after listing expiry when buyers introduced during the listing period complete purchases. The 'effective cause of sale' principle determines commission entitlement based on who first brought the buyer and property together. Under provincial real estate legislation like TRESA (Ontario) and RESA (Alberta), these clauses must be clearly disclosed and agreed upon. Holdover periods typically range from 30-180 days and protect brokerages' marketing investments while preventing commission avoidance schemes where sellers wait for expiry before completing sales with previously introduced buyers.

Q: What is a good way to remember the answer to this Contracts & Agreements question?

HOLD: Holdover clauses Override Later Dealings. Think of a brokerage 'holding onto' their commission rights like holding a winning lottery ticket - even if someone else cashes it in later, the original ticket holder keeps the prize. The brokerage that first introduced the buyer 'holds' the commission rights through the holdover period, regardless of who completes the final sale. When you see holdover clause questions, remember HOLD - ask yourself who first introduced the buyer during the original listing period. That brokerage 'holds' the commission rights if the sale occurs within the holdover timeframe, overriding any later dealings with new brokerages.

Q: What exam tip applies to this Contracts & Agreements question?

For holdover questions, identify: (1) Was the buyer introduced during the original listing period? (2) Did the sale occur within the holdover timeframe? (3) Is the holdover clause valid? If all three are yes, the original brokerage gets commission regardless of who completed the sale.

Q: How does this Contracts & Agreements concept apply in real world practice?

A homeowner lists with Brokerage A for six months. During this period, potential buyers attend open houses and receive marketing materials. When the listing expires, the seller immediately lists with Brokerage B at a lower commission rate. Two weeks later, a couple who attended Brokerage A's open house contacts the seller directly and purchases the property through Brokerage B. Despite Brokerage B handling the paperwork, Brokerage A's holdover clause entitles them to commission since they originally introduced the buyers during their listing period.

Question

Contracts & AgreementsListing AgreementsHARD

A listing agreement contains a 'holdover clause' stating that if the property sells within 90 days after expiry to anyone shown the property during the listing period, the brokerage is entitled to commission. The seller lists with a new brokerage immediately after expiry and sells to a buyer who attended an open house during the original listing period. Who is entitled to commission?

Answer Options

A

Only the original brokerage due to the valid holdover clause

B

Only the new brokerage since they procured the actual sale

C

Both brokerages are entitled to split the commission equally

D

Neither brokerage, as the seller must pay double commission which invalidates both claims