When you want to buy or sell your investment property, you may have to enlist the help of a real estate broker or agent. Real estate sales can be a complicated business that sometimes takes a long time. The broker or agent will do all the hard work on your behalf and can sometimes expedite the process.
There are many real estate agents to choose from, but an excellent place to start looking is Mashvisor’s Real Estate Agent Directory. It can help you find a reputable agent in any city.
What is a Safety Clause in Real Estate Terms?
A safety clause is known by several different names, such as broker protection clause, extension clause, broker safety clause, tail clause, procuring clause, or extender clause. You’ll often find a contingency clause in a listing agent’s contract.
The clause states that in certain situations, you, as the seller, will have to pay the listing agent commission fees even if the home sells after the listing expires or is canceled.
What Does This Mean for the Broker?
The seller usually bears most of the realtor commission fees when you sell a property. Sometimes, sellers want to enjoy the benefits of using a realtor but aren’t quite so happy when they’ve got to pay the fees. In such cases, the seller might decide to drag their feet and prolong the deal until after the listing has expired. Hence the need for a clause that ensures the broker is protected.
The clause allows the broker to receive payment for the work they’ve done to sell the house, even though the sale went through after the listing was stopped.
How the Broker Protection Clause Works
The procuring clause can come into play in several different scenarios, and there are some common questions that often get raised. So let’s try and answer them.
Is There a Broker Protection Period?
It’s not unusual for the clause to limit the amount of time the broker can collect the commission. For example, it could be a 180-day broker protection clause or any other protection period in real estate terms.
To exact the tail clause, a broker has to notify the seller as soon as the listing agreement expires. The notice will include the names of each buyer and must be issued within a certain number of days after the house is no longer on the market.
Does the Safety Clause Prevent Fraud?
The safety clause protects the broker in several ways. The most apparent protection is that it makes sure the broker gets paid after the time of the listing. In another way, the clause protects the broker from fraud.
The broker protection clause clarifies that the seller still has to pay the broker a commission should the buyer try to circumvent the broker and approach the seller directly. As such, it protects the broker from bad dealings between sellers and buyers. For example, they could try to work together to save the seller from paying the real estate commission.
When is a Safety Clause Applicable?
The extender clause doesn’t apply in all situations. Where it doesn’t apply, it’s often a case of someone forgetting to cross the t’s and dot the i’s. For example, the clause may fail if it wasn’t correctly checked on the listing contract.
It might also be inapplicable if the broker fails to give the seller written notice in time or in the manner specified on the contract.
Another situation where it doesn’t apply is if the seller and the buyer know each other and are friends.
One final situation is when you take your home off the market for a year. For example, let’s say you re-list your home and then sell it to a buyer who previously made a low offer while working with the listing agent. In this situation, the protection clause may not apply.
What Happens if You Hire Another Broker?
A seller is within their rights to hire a second broker and enter a new listing as soon as the former listing contract ends. In this case, the clause should specify that the seller will only owe a commission to the second broker. It must state this, even if a buyer brought in by the first broker purchases the house.
However, if the original broker can show they deserve some of the credit for bringing in the buyer, they might be able to claim a percentage of the commission.
Whatever happens, the seller won’t ever have to pay two commissions.
Does a Safety Clause Apply for an Open Listing?
With an open listing, things are a little bit different. An open listing is a non-exclusive listing agreement that allows a homeowner the right to work with several different brokers at the same time, but also to sell their property on their own, which is known as a “for sale by owner” or (FSBO).
The seller is only obligated to pay real estate commission to the broker who brings them the buyer whose offer is accepted. If the seller finds a buyer themselves, there is no obligation to pay brokerage fees.
This type of listing can be very beneficial for someone selling their home because they can market their home via multiple brokers’ networks as well as their own. For example, you might want to use a local listing as well.
The Mashvisor Property Marketplace is a tool you can use to list your real estate property for sale and market to real estate agents and investors. Selling a property through an open listing gives you greater control over the sale. However, you may not receive as much support as someone who signs a right-to-sell or exclusive agency contract.
Real estate agents should consider insisting that any open listing sellers agree to a one-party showing listing agreement. This type of contract will protect the agent’s commission. It’s down to the seller and the agent to agree on how long the clause will apply, whether that’s a certain number of days, weeks, or months.
The Importance of a Safety Clause for Both the Broker and Seller
A Safety Protection Clause has a vital part to play in the home selling process, whether you’re a broker or seller.
If you’re a broker working with sellers, you should aim to get a safety protection clause included in your listing contract. It will ensure you’re fairly paid for any work you do, even if a property is sold after the contract expires.
For sellers, the clause is equally important. While the main aim is to protect the broker, it’s not going to harm you in any way. On the contrary, it may work in your favor because the broker will trust you more, plus you get peace of mind knowing they’re being paid fairly for their work in selling your property.
Can You Get Out of Paying a Broker Protection Clause?
What happens when you’ve signed a broker protection clause and are not happy with the listing agent’s services? There is a possibility you can get out of paying commission.
Check the clause in your listing contract, and it will specify a timeframe during which the clause will still be in effect. Be aware that the time period varies considerably. It could be just a few days. However, it could be as long as an entire year.
Once the time has passed, you are under no obligation to pay listing commission fees. However, just to make sure you’re not under any obligation, you could consult with a real estate lawyer before moving forward.
If the agent you’re using hasn’t notified you of your obligation to pay the seller’s commission fees, you may have a case against the clause. Typically, a broker has three days to request commission fees from a seller. However, this time frame can vary from contract to contract.
In most cases, you’ll receive notice from the real estate broker once your listing has expired. The notice will confirm that you have to pay the broker commission should any of the viewers of your home decide to buy it. However, if you don’t receive any notice within the time frame, paying commission fees might not be your responsibility.
Remember that you’re not required to pay more money to the agent if you renew your listing agreement. All you’ll owe is the commission agreed in the contract.
Most real estate agents will include a safety clause in their contracts because it will ensure they earn a fair commission for all the hard work they put in. If you’re the seller, make sure you read the listing agreement thoroughly and if you think any of the timelines or dates are unfair, make sure you negotiate them.
You can add any potential buyers you know to the exclusion list, which will mean you can avoid the protection clause if you sell to one of them. But don’t forget that many real estate agents work hard to earn their commissions.