What is Tail Period (Broker Contract)?
The Short Answer
Tail Period (Broker Contract) explained simply
A "tail period" in a broker contract is a clause that protects the broker. It means that even after the main contract between the seller and the broker expires, the broker can still earn a commission. This applies if the business is sold to a buyer who the broker introduced to the seller during the original contract term. It prevents sellers from waiting for the contract to end to avoid paying the broker.
Real-World Example
Selling Your Coffee Shop
Imagine you hire a broker to sell your coffee shop. Your contract is for six months and includes a 12-month tail period. During the six months, the broker introduces you to three potential buyers. The contract expires, and you don't sell the shop right away. However, eight months after the contract ends, one of the buyers the broker introduced decides to purchase your coffee shop. Because of the 12-month tail period, the broker is still entitled to their commission on that sale.
Why this matters
The tail period is important for both sellers and brokers. For sellers, it means you need to be aware that you might still owe a commission even after your contract ends. For brokers, it ensures they are compensated for their work in finding and introducing buyers, even if the sale takes a bit longer to close.
Always read your broker contract carefully. Pay close attention to the tail period clause. Understand how long it lasts and what triggers it. This helps you avoid unexpected commission payments after your contract is over.
Always read your broker contract carefully. Pay close attention to the tail period clause. Understand how long it lasts and what triggers it. This helps you avoid unexpected commission payments after your contract is over.
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