PSI Virginia Real Estate Practice Exam

What event will cause the termination of an agency relationship if it occurs to either party?

1. Filing for bankruptcy

2. Change of contact information

3. Death or incapacity

4. Loss of a license

The correct answer is: Death or incapacity

The termination of an agency relationship occurs automatically if either party involved experiences death or incapacity. When an agent passes away or becomes unable to fulfill their duties, the agency relationship cannot continue, as one of the essential parties has been removed from the agreement. Agency relationships are based on the mutual consent and capacity of the individuals involved, so the incapacity of one party effectively nullifies the ability to represent the interests of the other party. In contrast, while filing for bankruptcy may affect a person's financial status and could lead to various legal limitations, it does not inherently terminate an agency relationship. Change of contact information is simply an administrative update and does not impact the validity of the agency. Additionally, loss of a license may result in the agent being unable to perform their duties legally, but this does not automatically dissolve the agency relationship unless legally mandated or if the parties agree to terminate it. Consequently, death or incapacity is the definitive cause for termination of an agency relationship, as it fundamentally alters the ability of the parties to continue their arrangement.