PSI Virginia Real Estate Practice Exam

When does termination of agency occur due to force of law?

1. If a legal purpose for the contract is no longer valid

2. Through mutual agreement by both parties

3. If either party finds an alternative property

4. If the broker proposes several options to the client

The correct answer is: If a legal purpose for the contract is no longer valid

Termination of agency occurs due to force of law when the legal purpose for the contract is no longer valid. This situation typically arises when an event or change in law renders the original intent of the agency agreement impossible to fulfill. For example, if the property involved in the agency is destroyed or if the law governing the property has changed to the extent that the purpose of the contract cannot be achieved, the agency relationship is terminated by operation of law. In contrast, mutual agreement signifies that both parties willingly decide to end the agency relationship, which does not involve any legal compulsion. Finding an alternative property does not inherently terminate an existing agency unless explicitly stated in the contract or agreed upon by the parties. Proposing several options by the broker to the client simply reflects the broker's role in serving the client and does not trigger termination of agency. Understanding the specific legal circumstances that compel the termination is vital for real estate professionals to navigate agency relationships effectively.