A listing agreement expires on June 15th. On June 20th, a buyer who was shown the property during the listing period submits an offer that is accepted. Under typical listing agreement terms, is the seller obligated to pay commission?
Correct Answer
B) Yes, due to the holdover clause protection period
Most listing agreements contain a holdover clause that protects the listing brokerage's right to commission for a specified period after expiry if the property is sold to someone who was introduced to the property during the listing period. This prevents sellers from avoiding commission by waiting for the listing to expire.
Why This Is the Correct Answer
Option B is correct because standard listing agreements contain holdover clauses that protect the listing brokerage's commission rights for a specified period after expiry. Since the buyer was shown the property during the active listing period and submitted an offer within the holdover period, the seller remains obligated to pay commission. This clause prevents sellers from avoiding commission by timing acceptance after listing expiry, ensuring brokerages receive compensation for their marketing efforts and buyer introductions made during the listing term.
Why the Other Options Are Wrong
Option A: No, because the listing agreement had expired
Option A incorrectly assumes that listing expiry automatically terminates all commission obligations. While the active listing period ended, the holdover clause extends commission protection beyond the expiry date for buyers who were introduced during the listing period, making the seller still liable for commission payment.
Option C: Only if the seller agrees in writing
Option C is incorrect because the holdover clause creates an automatic commission obligation that doesn't require additional written seller agreement. The commission entitlement is established by the original listing agreement terms and the buyer's introduction during the listing period, not by subsequent seller consent.
Option D: Yes, but at a reduced commission rate
Option D is wrong because holdover clauses typically maintain the full commission rate specified in the original listing agreement. There's no standard provision for automatic commission reduction during the holdover period - the brokerage earned full compensation through their marketing efforts and buyer introduction.
Deep Analysis of This Contracts & Agreements Question
This question tests understanding of holdover clauses, a critical protection mechanism in listing agreements that safeguards brokerages' commission rights. The holdover clause creates a post-expiry protection period (typically 30-90 days) during which the listing brokerage retains commission rights if the property sells to buyers introduced during the active listing period. This prevents sellers from circumventing commission obligations by deliberately waiting for listing expiry before accepting offers from previously shown buyers. The clause balances seller flexibility with brokerage protection, ensuring fair compensation for marketing efforts and buyer introductions. Understanding holdover provisions is essential for real estate professionals as they directly impact commission entitlement and must be clearly explained to clients during listing presentations.
Background Knowledge for Contracts & Agreements
Holdover clauses are standard provisions in listing agreements that extend commission protection beyond the listing expiry date. These clauses typically provide 30-90 days of protection for buyers who were introduced to the property during the active listing period. The clause must clearly specify the protection period duration and conditions for commission entitlement. Under provincial real estate legislation and regulations, holdover provisions must be clearly disclosed to sellers and included in written listing agreements. This protection mechanism ensures brokerages receive fair compensation for their marketing efforts and prevents sellers from manipulating timing to avoid commission payments.
Memory Technique
The HOLD AcronymHOLD: Holdover clauses Override Listing Dates. Think of a brokerage 'holding onto' their commission rights even after the listing expires, like holding a protective umbrella that extends beyond the original coverage period to shield their earned commission from buyers they introduced.
When you see questions about expired listings and commission obligations, remember HOLD - the holdover clause Override Listing Dates for buyers who were introduced during the active period. This helps you identify that expiry doesn't automatically eliminate commission rights.
Exam Tip for Contracts & Agreements
Look for key details: listing expiry date, offer submission date, and whether the buyer was shown during the listing period. If the buyer was introduced during the active listing and submits an offer after expiry, holdover clause protection typically applies.
Real World Application in Contracts & Agreements
A listing expires June 30th after extensive marketing. On July 10th, a buyer who attended an open house in May submits an offer that's accepted. The seller argues no commission is owed since the listing expired. However, the holdover clause in the listing agreement provides 60-day protection for introduced buyers. The brokerage successfully claims their full commission because they introduced this buyer during the active listing period, demonstrating how holdover clauses protect legitimate commission rights in practice.
Common Mistakes to Avoid on Contracts & Agreements Questions
- •Assuming listing expiry automatically terminates all commission obligations
- •Confusing holdover protection with listing renewal requirements
- •Believing commission rates are automatically reduced during holdover periods
Key Terms
More Contracts & Agreements Questions
What is the primary purpose of an Agreement of Purchase and Sale (APS) in a real estate transaction?
In a listing agreement, what does the term 'holdover period' refer to?
Which of the following is NOT typically considered an essential element for a valid contract under Canadian common law?
When can a conditional offer become unconditional in a real estate transaction?
A buyer submits an offer with a financing condition that expires at 11:59 PM on Friday. The buyer's mortgage application is approved at 10:30 AM on Saturday. What is the legal status of the offer?
- → In Ontario, what is the significance of the 'irrevocable' period in an Agreement of Purchase and Sale?
- → A seller receives two offers on the same property. The first offer is conditional on financing, and the second is unconditional but for a lower price. What is the seller's best legal option?
- → What happens when a buyer waives a home inspection condition after discovering significant structural issues during the inspection?
- → In British Columbia, if a listing agent presents an offer to their seller client that contains an unusual clause they don't understand, what is their professional obligation?
- → A buyer's agent discovers that their client has been declared bankrupt but has not disclosed this information. The client wants to submit an offer on a property. What should the agent do?
- → What is the primary purpose of an Agreement of Purchase and Sale in a real estate transaction?
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- → What happens when a condition in an Agreement of Purchase and Sale is not fulfilled by the specified deadline?
- → A buyer submits an offer with a financing condition that must be satisfied within 5 business days. On day 4, the buyer's mortgage application is approved but they want better terms. What can the buyer legally do?
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Previous Question
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?
Next Question
A listing agreement in Alberta expires on December 31st at 11:59 PM. An offer is presented at 11:45 PM on December 31st but is not accepted until 12:30 AM on January 1st. What is the commission entitlement?