If you're in the market to buy or sell a home, you may have a broker or agent who is putting in a lot of hard work. Real estate sales can often be complex, and they can take a long time. It's easy for things to get lost in the shuffle, so you may be asked to sign a number of contracts for a host of reasons, one being that your agent is paid.
When you list your home with a broker, you agree to pay them a commission in exchange for finding a buyer. This listing contract may include a safety protection clause, which states that the broker is entitled to this payment even if the sale occurs after the listing contract expires.
Learn how when the safety protection clause applies and how it protects real estate brokers from fraud.
What Is a Safety Protection Clause?
An exclusive right-to-sell listing agreement will often have a clause that entitles the real estate broker to a commission after the listing expires or is canceled. The safety protection clause applies in the event that a buyer who was brought by the listing broker later purchases the house after the listing has been withdrawn or expired.
A listing agreement is a type of employment contract between the broker and the seller which entitles the broker to fair compensation for their work.
From the Broker's Point of View
To explain, suppose you are a broker, under contract with an owner to help sell their house. You agree to list it for a certain time, and to work with agents to show it to many people. After months, you end up finding a willing buyer, but there's a process of back and forth before landing on a final sale price. In the meantime, your listing contract with the owner reaches its end date. Two weeks later, the buyer agrees to a price, and the sale contract is signed. Without a safety clause, you'd lose out on seeing any money in this deal, in spite of your efforts.
Luckily you have a safety protection clause in place. This clause allows you as the broker to receive payment if your work to sell the house was fruitful, even if that sale occurs after you stopped the listing.
How the Safety Clause Works
Even though it may seem quite simple, the safety protection clause may be at play in a wide range of scenarios. Here are a few of the most common questions.
Does the Safety Clause Have a Time Limit?
The clause often includes a limit on the amount of time that the broker is able to collect a commission. The length of time can vary. In order to exact the safety protection clause when the listing agreement expires, the broker must send notice to the seller with each buyer's name within a certain number of days after the house is off the market.
How Does the Safety Clause Prevent Fraud?
The safety protection clause protects a broker in more ways than one. As well as getting paid after the time of the listing, it also helps brokers from fraud. The clause states that the seller still owes the broker a commission if a buyer tries to go around the broker and go directly to the seller. This protects the broker from bad dealings between sellers and buyers, such as if they collude to save the seller the cost of real estate commission.
Will a Safety Clause Always Apply?
There are a few cases when the safety clause will not apply. Most have to do with making sure you dot the i's and cross the t's. One reason a safety clause may fail is if it is not checked on the listing contract. The clause may also fail if the broker doesn't give written notice to the seller in a time, or in the manner as stated on the contract. Lastly, if the seller and buyer know each other as friends, or if they fell into contact without the broker's help, the clause will not apply.
There are many other names for the safety clause. You might also hear it called a broker protection clause, extension clause, extender clause, broker safety clause, tail clause, or procuring clause.
What if I Hire a Second Broker?
If the seller enters into a new listing with a new broker right after the former listing contract ends, the clause should state that the seller will only owe a commission to the second broker. It must state that this is the case even if the house is sold to a buyer who was brought in by the first broker.
If the original broker can show that they deserve credit for bringing in the buyer, they may be able to claim a portion of the commission. Either way, the seller should never have to pay two commissions.
Do I Need a Safety Clause for an Open Listing?
Open listings can be tricky for real estate agents because there is nothing in writing to bind the seller to any one agent. In this case, the seller agrees to pay the commission to the agent who brings an offer from a ready and willing buyer.
An open listing is much like house that is for sale by owner (FSBO) when it comes to getting the seller to pay commission.
A real estate agent should think about having the seller agree to a one-party showing listing agreement. This is a contract that will protect their commission if they find an open listing or an FSBO property they want to show. The agent and the seller can agree upon the number of days, weeks, or months that the clause will apply.
Why You Should Include a Safety Protection Clause
If you are a broker working with a seller, you will want to ensure that a safety protection clause is included in your listing contract. This ensures that you will be paid fairly for the work you did, even if a sale occurs after the listing contract expires.
If you are a seller, your broker will most likely present you with a contract that includes a safety protection clause. Though its main goal is to protect the broker, rather than you, it does not harm your end of the bargain in any way. It simply ensures that the broker you work with will receive the payment they are owed for their work in finding a buyer. In fact, it may work in your favor as well to have a broker who trusts you and will feel safe in knowing that they'll be paid fairly in their work to sell your home.
- A safety protection clause in a listing agreement entitles the real estate broker or agent to a commission after the listing expires or is canceled.
- This applies when the final buyer was brought to the deal by the broker.
- A safety protection clause is designed to ensure that a broker receives fair compensation for their work and to prevent collusion between buyers and sellers.
- The broker must send notice to the seller with each buyer's name within a certain number of days after the house is off the market in order for the clause to apply.