Overages
Overages are additional payments made to a property seller when certain conditions are met after the initial sale, typically when the buyer achieves specific development milestones or profit thresholds. These arrangements are commonly used in commercial real estate transactions where the property's future value potential exceeds its current market value.
Example
“The developer agreed to pay overages to the original landowner if the shopping center's annual revenue exceeded $5 million.”
Memory Tip
Think of 'over' the original 'age' (agreed amount) - extra payments when performance goes over expectations.
Why It Matters
Overages allow sellers to participate in the future success of a property development while enabling buyers to purchase at current market rates. This arrangement can make deals possible when parties disagree on a property's immediate worth.
Common Misconception
Overages are not the same as earnest money deposits or additional down payments at closing.
In Practice
A developer purchases farmland for $1 million with an overage clause that requires paying the seller an additional $500,000 if residential building permits are obtained within five years. When the developer successfully rezones the property and gets permits, the overage payment becomes due to the original landowner.
Etymology
From Middle English 'over' meaning 'beyond' and Old French 'age' meaning 'portion,' originally referring to surplus amounts beyond the agreed portion.
Common Misspellings
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