What Is an Extender Clause?
An extender clause is a contractual provision in an exclusive real estate listing agreement. This type of clause protects the listing agent by guaranteeing their full commission in the event that the property sells after the listing agreement has already expired.
In order for the agent to qualify and receive their commission, the buyer must be someone to whom the agent showed the property during their time as the listing agent.
- An extender clause protects a listing agent in the event that they show a potential buyer a property, but the buyer doesn't actually make the purchase until after that agent no longer has the right to the listing.
- An extender clause only applies to a buyer whom the original agent brought in and typically extends the period in which an agent can earn a commission by a few months.
- Without an extender clause, a seller could put off a sale until the listing agreement has ended, allowing them to avoid paying the buyer's agent a commission.
Understanding Extender Clauses
An extender clause protects the listing agent from losing a commission that they earned, even if the agreement has expired. For example, a seller may hope to cut down on closing costs when they sell their home. To do this, they could try to avoid paying the buyers' agent’s commission. If the seller goes behind the agent’s back and makes a deal to sell the home to a buyer after the listing agreement has expired, the seller could save money by not paying the agent’s commission.
An extender clause protects against such an occurrence, making sure the agent gets their commission.
When a listing agreement ends, if the seller enters into a new listing agreement with a different agent, it’s important that they let the new agent know about an extender clause still in effect for the previous agent.
An extender clause is also known as a protection clause or a safety clause.
How an Extender Clause Works
A homeowner may enter into an exclusive listing agreement with a real estate agent. The duration of these agreements vary, but three months is a common length. During those three months, the real estate agent generally works hard to bring potential buyers to see the home. Real estate agents work on commission, meaning that they are paid based on the sale and price of properties. This motivates them to bring in as many potential buyers as they can.
If after three months the exclusive listing agreement expires and the home has not sold, the seller or the agent may choose not to renew the agreement. The seller may wish to work with a different agent or the agent may determine that the home is not likely to sell and is not worth their time.
If the listing agreement contained an extender clause, then after the agreement has expired, if one of the potential buyers who had seen the home through the agent purchases the house, the agent still receives the commission they would have received through the expired contract.
Extender clauses specify an end to the provision, which is usually a few months after the contract expires. Thus, if a potential buyer returns to purchase the home in a year or two, assuming it’s still for sale, the agent would no longer be entitled to their commission.