When a buyer or seller enters into an agreement with a real estate agent, it is typically for a set term of 60 or 90 days. The agent is contracted to represent the buyer or seller in the purchase, sale, or lease of a property during that time. When the term expires, the buyer or seller can either renew the contract, or walk away.
A holdover refers to a provision in an agreement that remains after expiration of the original agreement. In real estate, this holdover is typically an additional 60 or 90 days. This means that if a buyer is introduced to the seller’s property during the term of the original agreement, there may be a commission payable to the real estate agent, if the buyer subsequently buys or leases the property. The holdover provision in the agreement indicates that a seller or buyer agrees to pay the commission if an agreement to purchase or lease is agreed to, or accepted within a stated number of days after the expiration of the agreement.
There is one exception to the holdover provision. If an agreement is entered into with another brokerage, the buyer or seller may be able to reduce the commission owing under the original agreement. The holdover provision usually states that the amount of commission payable to the first brokerage is reduced by the amount of commission payable to the subsequent brokerage. In simple terms, unless the real estate commission agreed to with the subsequent brokerage is equal to, or more than the commission stated in the initial agreement, the buyer or seller will be required to pay the difference to the first brokerage.
Buyers and sellers who are uncertain about how the holdover provision works should ensure that their real estate agent explains it to them in detail. They may also want to negotiate a shorter holdover period, or simply wait for it to expire, especially in situations where it may be unclear when a buyer was first introduced to a property.