Termination of Agency
How can an agency be terminated?
Well, first off, you need to know what an agency is. Learn everything you need to know about creating an agency here. If you want to pass the real estate exam, you must know how an agency is created. Additionally, you should know the different types of agency, which you can learn about here. Once you have those concepts down, you can learn how an agency can be terminated, which is what we will cover in this article.
There are many ways to terminate an agency. These ways can be broken down into two types: (1) termination by the acts of the parties and (2) termination by the operation of law.
1 – Termination of an agency caused by the acts of the party:
The most common termination of agency in this category is by performance. Performance is the completion of the agency’s purpose. For example, a broker hired to sell a property sells the property. This performance would terminate the agency.
Agreement of both parties would end the agency.
Discharged by Principal
Who is the principal? The principal is usually the seller and is also known as the client. They are the party who hired the broker to sell their property. If the principal/client decides they no longer want the broker to represent them, they can terminate them. However, they may be liable to the broker for certain expenses, such as advertising expenses.
An agent (the broker) can resign at any time but may be found liable for breach of contract.
If a broker takes no action to market a listing, they may be considered to have abandoned it. Abandonment will terminate the agency and can result in a breach of contract.
2 – Termination by Operation of Law:
Expiration of Term
Generally, a listing agreement will include a time frame it is in effect. If the property is not sold within this time frame, it will cause a termination of the agency. If there is no time limit in the listing agreement, it may be terminated after a “reasonable” period.
Death or Incapacity of the Parties
Death or incapacity (including insanity) of either party will terminate the agency. Notice, since a licensee that represents a broker is not a party to the listing agreement if they die or lose capacity it will NOT terminate the agency.
Change in the Law
There will be a termination of an agency if the contract is no longer for a legal purpose.
Destruction of the Property
For example, there will be a termination of an agency if a house burns down before it is sold.
Condemnation of the Property
If the property is taken by eminent domain, the agency will be terminated.
If either the principal or broker files for bankruptcy during the term of the contract the agency will be terminated. If a licensee who is representing a broker files for bankruptcy it will have NO impact on the agency.
Loss of license
If the broker loses their real estate license during the term of the contract the agency will be terminated.
Here is a sample real estate exam question related to agency termination:
Which of the following would terminate a listing agreement?
A. Death of the seller
B. The bankruptcy of the listing agent
C. Death of the listing agent
D. All of the answers given could terminate a listing agreement
Explanation: Death of the seller would terminate the listing agreement. As would the death of the listing broker and/or bankruptcy of the listing broker. If the listing agent dies, the listing can be assigned to another agent by the listing broker. The listing agent’s bankruptcy would have no impact on the listing agreement.
What else can help me prepare to pass my real estate licensing exam on my first attempt?
Other tips to help you pass your real estate licensing exam on your first attempt:
Also, check out our question of the day videos on our YouTube channel: