Protection Clauses in Real Estate: Here’s What Sellers Need to Know
You may need to pay your real estate agent commission if you sell your home to someone after the listing agreement expires. We'll fill you in on how protection clauses in listing agreements work.
Your real estate agent invests time and effort to market your home to find the best buyer possible. If the agent successfully finds you a buyer for your home, they earn a commission on the sale. But what happens if the listing agreement with your agent expires, and you receive an offer from a buyer after your agent is out of the picture?
Well, you may still be on the hook to pay your former listing agent’s commission depending on the terms of the protection clause in your contract.
Rachael Barach, who has over 17 years of experience selling homes in Florida, tells us that protection clauses are commonplace in listing agreements; however, sellers rarely inquire about their meaning. Below, we’ll tell you all you need to know about the protection clause in real estate, including under what circumstances this clause is applicable or void.
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What is a protection clause?
When you hire a real estate agent, you’ll sign a listing agreement detailing the terms of service, commission (usually around 3%), and contract length. Most contracts are an “exclusive right to sell listing agreement” that gives the real estate agent the sole rights to market the property, list the property on MLS, and receive the commission if the sale closes in a determined time frame.
The listing agreement also includes a protection clause, also known as a “brokerage protection clause, “safety clause,” “extension clause,” or “tail provision.” The protection clause states that if a buyer who the listing agent introduced to the property purchases the property after the listing agreement expires, the seller still must pay the agent a commission.
Protection clause windows range 30 to 45 days on average
Protection clauses include an expiration date that’s typically 30 to 45 days after the listing agreement expires. Some exclusions may apply, which is why it’s so important to read the fine print and ask questions before signing the contract.
An exclusion list voids the protection clause for designated buyers
In many cases, you may include an “exclusion list” in your listing agreement with the names of prospective buyers you’ve connected with before bringing on the agent. If a family member or friend is potentially interested in your home, it’s usually a good idea to add them to an exclusion list. This way, you won’t owe a commission if the person decides to purchase your home after the listing agreement with your agent expires.
You can void a protection clause if the listing agent neglected contractual obligations
If you can prove that your agent was negligent or did not hold up their end of the contract by sufficiently marketing your property or doing their job, you may be able to void the protection clause. Barach shares that some reasons could include an agent’s failure to operate honestly or represent your best interest in the transaction.
She notes that in many cases, the cost of litigation often outweighs the commission. However, it may be worth looking into if you feel you have a strong case.
