PSI Virginia Real Estate Practice Exam

What would cause an agency agreement to terminate regarding property destruction?

1. A house undergoes renovations

2. A house burns down before it is sold

3. The seller changes their mind

4. A real estate agent is fired

The correct answer is: A house burns down before it is sold

When an agency agreement is in place, it is typically tied to a specific property. If that property is substantially destroyed, such as in the case of a house burning down prior to its sale, the material condition of the property has fundamentally changed. This change can render the agreement void because the main subject of the contract—the property in question—no longer exists in its previous form. In real estate transactions, the existence of the property is essential for the agency relationship to continue. If the property is destroyed, the purpose of the agreement to facilitate the sale becomes impossible, thus leading to the termination of the agency agreement. Other options such as renovations or a seller simply changing their mind do not fundamentally eliminate the property or its potential for sale. Even if a real estate agent is fired, the agency agreement may still continue until all responsibilities are resolved or the terms dictate otherwise. Therefore, the destruction of the property effectively necessitates the termination of the agency agreement, making it the correct answer.