The safety protection clause gives the real estate agent the right to receive a commission if a sale occurs after the listing agreement has ended. This clause protects the agent from collusion between sellers and buyers to save the property commission cost for the seller.
What is the safety protection clause?
Exclusive listing agreements often contain a clause that grants the real estate agent the right to receive a commission after the listing has expired or been canceled. The safety protection clause applies in the event that a buyer brought by the real estate agent purchases the home after the listing has been withdrawn or expired.
Note: A listing agreement is a type of employment contract between the agent and the seller that gives the agent fair compensation for their work.
From the agent’s perspective
Let’s say you are an agent under contract with an owner to help sell their home. You agree to list it for a certain period and work with other agents to showcase it to a wide audience. After months of effort, you find a buyer ready to purchase, but there is a negotiation process before reaching a final selling price. Meanwhile, your listing contract with the owner reaches its expiration date. Two weeks later, the buyer agrees on the price and the sales contract is signed. Without the safety clause, you would lose any financial amount in this deal despite your efforts.
Fortunately, you have the safety protection clause in place. This clause allows you as the agent to receive payment if your efforts in selling the home are successful, even if the transaction occurs after the listing has ceased.
How does the safety clause work?
Although it may seem very straightforward, the safety protection clause can exist in a wide range of scenarios. Here are some frequently asked questions:
Does the safety clause have a time limit?
Often, the clause includes a time limit for the agent to collect the commission. The length of time can vary. In order to enforce the safety protection clause after the listing agreement has expired, the agent must send a notice to the seller with the names of all buyers within a certain number of days after the home has been withdrawn from the market.
How does the safety clause prevent fraud?
The safety protection clause protects the agent in more than one way. In addition to receiving payment after the listing has expired, it also helps agents protect themselves from fraud. The clause stipulates that the seller still owes the agent a commission if the buyer attempts to bypass the agent and go directly to the seller. This clause protects the agent from bad dealings between sellers and buyers, such as collusion to save the property commission cost for the seller.
Will the safety clause always apply?
There are some circumstances under which the safety clause will not apply. Most of these relate to ensuring that you have taken all necessary actions. The safety clause may fail for several reasons, such as not being verified in the listing agreement. The clause may also fail if the agent does not provide written notice to the seller in a timely manner or in the manner specified in the contract. Finally, if the seller and buyer know each other as friends, or if they communicate without the agent’s assistance, the clause will not apply.
Note: There are many other names for the safety clause. You may also hear it called the agent protection clause, extension clause, agent safety clause, tail clause, or commission entitlement clause.
What if I hire a second agent?
If the seller enters into a new listing agreement with a new agent immediately after the previous contract expires, the clause should specify that the seller will owe the commission only to the second agent. It should state that this is the case even if the home is sold to a buyer brought by the first agent.
If the original agent can prove that they deserve recognition for bringing the buyer, they may be able to claim a portion of the commission. In any case, the seller should not have to pay two commissions.
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Do You Need a Safety Clause for an Open Listing?
Open listings can be challenging for real estate agents because there is nothing written that ties the seller to any specific agent. In this case, the seller agrees to pay the commission to the agent who brings in an offer from a ready, willing, and able buyer.
An open listing is very similar to a home being sold by the owner themselves when it comes to convincing the seller to pay the commission.
A real estate agent should consider agreeing to a listing agreement for a one-time offer. This is a contract that protects their commission if they find an open listing or property being sold by the owner themselves who wants to list it. The agent and the seller can agree on the number of days, weeks, or months the clause will be applicable.
Why You Should Include a Safety Protection Clause?
If you are an agent working with a seller, you will want to ensure that a safety protection clause is included in your listing agreement. This ensures that you will be fairly compensated for the work you’ve done, even if a sale occurs after the listing agreement has expired.
If you are a seller, your agent is likely to offer you a contract that includes a safety protection clause. Although its primary purpose is to protect the agent, not you, it does not impact your agreement in any way. It simply ensures that the agent you are working with will receive the compensation they are owed for their work in finding a buyer. In fact, this may work in your favor as well because you have an agent who trusts you and will feel secure knowing they will be fairly compensated for their work in selling your home.
Source: https://www.thebalancemoney.com/safety-protection-clause-1798628
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