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What You Should Know about Ending an Agency Relationship for the Real Estate License Exam

A real estate agency relationship can end in several different ways, and you should be familiar with these for the Real Estate License Exam. Depending on the reason for the termination, the particular circumstances, and what is negotiated, the broker may or may not be entitled to compensation.

You also need to remember that the fiduciary duty of confidentiality survives the ending of an agency relationship. A broker may not reveal information received from a client even after that client stops being the broker’s client. Here are some of the ways an agency relationship can be ended:

  • Completion of the terms of an agreement: This method of ending a relationship sometimes gets forgotten. The relationship ends when you do what you agreed to do. Obviously, the agent receives payment in this situation.

  • Expiration of the time period of the agency agreement: Agency relationships tend to be written for limited time periods, with six months being typical. If the agreement expires and no sale has been accomplished, the agency relationship ends with no payment to the broker.

  • Destruction of the property: If the property is destroyed by a natural or other disaster, such as a fire, a flood, a tornado, and so on, the property that was for sale no longer exists in its original form, so the agreement ends. No commission is paid. And yes, the owner can relist the now-destroyed house and semi-vacant land for sale.

  • Taking of the property through an eminent domain proceeding (condemnation): Because the property doesn’t belong to the seller anymore through no fault of his own, no commission is owed.

  • Bankruptcy: A bankruptcy filing by either of the parties (principal or agent) can end an agency relationship. It is unlikely that a commission is owed.

  • Agreement by both parties: Both parties agree to end the agency relationship before the terms of the agreement are met. In other words, no transfer of property takes place. An ending like this might result in some payment to the seller’s broker for things like advertising costs.

  • Death or declaration of incompetence: When either party dies or is declared incompetent, the agency relationship is ended and no commission is due, but a broker may seek to collect some costs like advertising from the estate.

  • Renunciation or revocation: Renunciation and revocation indicate the desire of one party but not the other to end the agency relationship. Permission to end the relationship this way varies from state to state. The technical terms for this method of ending a relationship are renunciation by the agent and revocation by the principal. Depending on the circumstances, one party may be able to collect money from the other.

The information on ending agency relationships is pretty general. But you definitely need to check out whether any of these methods are permitted in your own state or if other ways of ending an agency relationship are acceptable.

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