How do agency relationships end, and what are the consequences of termination?

Laws of Agency on the Real Estate Exam

Understanding how agency relationships end is important for both agents and clients. Agents need to know when their fiduciary duties cease and when they can work with other clients. Clients need to know how to end unsatisfactory agency relationships and what rights they have. The exam tests whether you know the different ways to terminate an agency relationship and what duties continue after termination.

Understanding Laws of Agency: Key Concepts

What It Means

An agency relationship is not permanent and can end in several ways. Understanding each method of termination and its legal consequences is essential for real estate professionals.

Mutual agreement is the simplest and cleanest way to terminate an agency relationship. Both the agent and client agree in writing to end the relationship. When terminated by mutual agreement, the agent's fiduciary duties cease, though some duties like confidentiality typically continue. Mutual agreement often includes discussion of any unsold listings, earnest money held, or commissions owed.

Unilateral withdrawal occurs when one party ends the agency relationship without the agreement of the other. A client can usually unilaterally terminate their agent at any time, though they may be liable for early termination fees or commission if specified in the listing agreement. An agent can unilaterally withdraw from an agency relationship, but may face liability for breach of contract if the listing term has not expired. The listing agreement typically specifies what happens if either party wants to terminate early.

What Happens After

Completion of the transaction is an automatic termination method. Once the transaction closes, the agency relationship ends for that particular transaction. However, if the agent and client have an ongoing relationship or listing agreement, the agency may continue for other properties.

Expiration of the listing term occurs when a listing agreement specifies a term (e.g., 90 days or 6 months) and that term expires. The listing agreement expires automatically without action by either party. After expiration, the agent no longer represents the seller unless the parties renew the listing agreement.

Death or incapacity of either party terminates the agency relationship. If the client dies or becomes incapacitated, the agent's authority ends. If the agent dies or becomes incapacitated, the agency relationship terminates, though the brokerage may assign another agent to continue the relationship. State law typically specifies how this works.

Additional Considerations

Bankruptcy of the client may terminate the agency relationship because the client's assets are under court control. Bankruptcy of the agent does not automatically terminate the agency but may affect the agent's ability to represent the client.

Breach of a material term by either party can justify termination. If an agent breaches a material duty (e.g., fails to market the property, engages in fraud), the client can terminate. If the client breaches a material term (e.g., refuses to make the property available for showing), the agent may have grounds to terminate.

Abandonment occurs when one party ceases to perform their duties without formally ending the relationship. For example, if an agent stops marketing a listing and is unavailable to the client, the agent may be deemed to have abandoned the relationship, allowing the client to terminate.

Exceptions and Limitations

After agency termination, the agent's duties generally cease. However, confidentiality duties often continue even after the relationship ends. An agent cannot use confidential information learned from a former client even after the relationship ends. Additionally, if the agent's negligence or fraud caused harm, liability may continue.

Listing agreements typically include provisions about termination, including whether the agent can still earn a commission if the property sells after the listing expires but was shown by the agent during the listing term. Some agreements include tail commissions or holdover periods where the agent can still earn commission if the property sells within a specified time after termination.

Laws of Agency Rules by State

Each state has its own rules when it comes to laws of agency. Here are a few examples of how requirements differ: