A protected buyer list in NYC real estate is a set of names your listing agent remains eligible to earn a commission on within a certain period of time after the original listing agreement expires.
A protected buyer list is also referred to as a protection clause, a safety clause or an extender clause in real estate lingo.
If one of the named purchasers on the protected buyer list signs a contract to buy your property within a certain number of days after the expiration of the listing agreement, the original listing agent is eligible for commission according to the compensation terms set forth in the listing agreement.
The terms of a protected buyer list are contained within your listing agreement. Typical terms include the number of allowable names, how soon the listing agent must send you the list after the listing agreement expires, and how much time the listing agent has to procure a signed contract from one of the buyers on the list.
The purpose of a protected buyer list is to ensure that your current listing agent remains incentivized to procure offers from the most serious prospective purchasers who viewed your home during the term of the listing agreement.
Let’s say a prospective purchaser viewed your property on day 179 of the 180 day listing agreement term and is strongly considering submitting an offer. Without the protection afforded by a protected buyer list, your listing agent would simply put pencils down and not bother to follow-up with this lead.
Even if you’ve signed with a new listing agent who plans on immediately relisting the property, there’s always a risk that the change in representation may confuse, intimidate or otherwise discourage the prospective purchaser from submitting an offer.
Moreover, your current listing agent has no obligation to play nice and hand over a detailed list of interested parties along with actionable items to the next listing agent. Nor is your current listing agent obligated to make any sort of introduction to the new listing agent on behalf of any prospective purchasers who remain interested.
A protected buyer list usually consists of no more than six names, but this varies by listing agreement. The terms of a protected buyer list are negotiable.
Here is an example of protected buyer language commonly seen in a NYC listing agreement:
In this particular example, the original listing agent must submit a list of names to the seller within 3 business days of the expiration of the listing term. The allowable number of names to be submitted is no more than six. The original listing agent is only eligible for commission if a named buyer signs a purchase contract within 90 days of the expiration of the listing agreement.
The example protected buyer language above also includes a requirement that the seller disclose the existence of the protected buyer list to the new listing agent. It is imperative that your new broker agrees to exclude these names from commission obligations in the new listing agreement you sign.
Failure to obtain a named buyer list carveout in any subsequent listing agreement may result in you having to pay double commission on any protected buyer who ends up purchasing your property.
Imagine having to pay 6% to your old agent and 6% to your new listing agent, for a total of 12%. This mistake would make your combined seller closing costs anywhere between 14% and 16%!
Realistically, it would simply mean that you would have to turn down the offer from the named buyer, even if you otherwise would have been happy to move forward if the prospect of double commission wasn’t on the table.
As we’ve already hinted at, a protected buyer list provision is highly advantageous to you as a seller. After all, why would you want to remove all motivation from your old broker if she or he is in touch with a few buyers who might legitimately buy your home? Your primary goal is obviously to sell, regardless of whether you’re enthusiastic about your listing agent’s performance to date.
Moreover, a protected buyer list usually creates healthy competition between your old broker and the new listing agent you’ve hired. This means that you’ll effectively have two agents working harder than ever to try and bring you offers as soon as possible.
