In the late 20th century, a quirky but useful term emerged out of the professional baseball industry called “inside baseball”. Basically, inside baseball refers to acronyms, specialized or technical language, or concepts that only professionals in the industry (or super fans) understand. The term inside baseball is now applicable to many specialized industries, and REALTORS® can be blind to their use of these specialized real estate terms without realizing many consumers can only guess what they mean. The holdover period is one of those “inside baseball” terms that gets batted about without explanation, so let me take a few minutes to unpack it.
When a property owner has a piece of real property they want to sell, they contact a REALTOR® to help them sell it. Once they believe the Realtor® has the expertise and a plan to sell the property in the shortest period, for the most amount of money, with the least number of complications they hire them by signing an Exclusive Seller Representation Agreement (ESRA). In Alberta, every Realtor® uses the same provincial standard form to formalize this relationship and to negotiate the fee the seller agrees to pay the brokerage. The brokerage then, through a specific Realtor®, invests time, money, and experience into the process to cast the broadest possible net for the buyer that may be interested in the property, which usually results in a number of showings, offers, and ultimately a sale where the brokerage is able to recapture their investment through the payment of their fee by the seller at closing.
Although every interaction with a seller is built on the best intentions, the brokerage sometimes runs out of time to market the property, and the ESRA expires. Although the brokerage made their best efforts to market the property and find a suitable buyer, usually at their own cost in time and money, it doesn’t always work out. Now imagine that the brokerage was able to introduce several buyers to the property during the course of its efforts to fulfill their representation to the seller, but only after the contract with the seller expired did the buyer end up writing a successful offer… enter the holdover clause.
This clause in the ESRA, commonly referred to as a holdover clause, maintains, or “holds-over,” the brokerage claim on the fee owed by the seller if, within a specified period of time, a buyer who was introduced to the property during the course of the active ESRA writes an offer that the seller accepts. As mentioned, the brokerage likely invested a ton of resources into finding and introducing that buyer to the property, and because of their efforts, the seller and buyer can make a deal, accomplishing exactly what the original agreement was designed to accomplish. This holdover period is agreed to in the original ESRA and requires the seller to compensate the brokerage fee in such cases.
Understanding that the holdover clause is only intended to protect the brokerage for their fees in cases where the buyer was demonstrably introduced to the property during the active ESRA, there are 3 general exceptions to the holdover clause worth noting. First, if the successful buyer was excluded in writing from the original ESRA, such as a family member or neighbour who expressed interest in the property before the ESRA started and the brokerage and seller agreed in the contract to exclude that individual at the outset. Second, because the holdover clause is never intended to hold a seller hostage for a period of time, if the seller signs a new ESRA with a licensed brokerage after the previous ESRA ends, then the holdover clause is also ended, and the seller is free to sell the property under the new ESRA to anyone, even someone introduced to the property during the previous ESRA, without fear of paying fees under the previous ESRA. Finally, an unconditional termination of the ESRA would also end the holdover clause rights of the brokerage under that ESRA. Fundamentally, the effectiveness of the holdover clause is the difference between the conditional and unconditional termination options of an ESRA. Conditional terminations protect the brokerage using the holdover clause for situations as I described above, but unconditional terminations end all except a handful of enduring rights of the parties in the original ESRA.
In my experience, the seller generally wants the brokerage to be paid for their efforts and isn’t looking for some way to wiggle out of their original agreement. The holdover clause just codifies this understanding in the very specific circumstances where the brokerage has truly earned its fee in finding the buyer, but the agreement expired recently or was conditionally terminated. Although you still may not know the inside baseball term “Fielding Independent Pitching,” hopefully, you understand the holdover clause a little better.