PSI New Jersey Real Estate State Practice Exam

What is the purpose of an extension or "tail" clause in a real estate contract?

1. To provide a commission to the broker after the listing expires

2. To establish a payment plan for the buyer

3. To outline the duties of the buyer

4. To transfer property title immediately

The correct answer is: To provide a commission to the broker after the listing expires

An extension or "tail" clause in a real estate contract primarily serves to protect the commission rights of the broker after the listing agreement has expired. This clause allows for the broker to receive a commission if a sale occurs within a specified period after the expiration of the listing, provided that the buyer was introduced to the property during the term of the listing agreement. This mechanism ensures that brokers are compensated for their efforts in marketing the property and attracting potential buyers, even if the sale takes place after the official listing has ended. Such clauses are relevant in real estate transactions to safeguard the interests of brokers against potential losses of commission due to timing differences in closing sales. The other options do not accurately capture the function of a tail clause. For instance, the establishment of a payment plan for the buyer pertains to financing arrangements, which is not the objective of a tail clause. Outlining the duties of the buyer falls under the terms of the agreement but is different from a clause meant to protect broker commissions. Meanwhile, the immediate transfer of property title describes the closing process rather than any contractual provisions related to the broker's commission.