National Real Estate Exam (PSI)General Principles of AgencyHard
A seller becomes frustrated with the listing broker's marketing efforts and, without any legal justification and mid-term of an exclusive listing agreement, sends written notice unilaterally firing the broker. Although the agency relationship legally ends immediately, what is the seller likely exposed to?
- ACriminal penalties for real estate fraud
- BNo consequences, since the listing was terminable at will
- CAutomatic transfer of the listing to another broker
- DPotential liability for breach of contract, such as owing a commission
Show answer & explanationAnswer & explanation
Correct answer: D. Potential liability for breach of contract, such as owing a commission
A principal always has the power to unilaterally revoke an agency relationship, and doing so ends the agency itself. However, if there was no legal cause and the revocation breaches the listing contract, the principal may still be liable to the broker for damages such as the commission that would have been earned.
Why the other options are wrong
- A. Simply canceling a listing agreement is a civil contract matter, not a criminal act.
- B. Agency can be terminated at will, but that doesn't erase contractual liability for wrongful termination.
- C. Termination does not automatically create or transfer any new agency relationship.
Termination by Revocation
A principal can always unilaterally revoke an agent's authority, ending the agency relationship immediately, but doing so without legal cause may expose the principal to breach of contract liability.
- Power to revoke always exists, even if wrongful
- Agency ends regardless of contractual breach
- Wrongful revocation may result in damages owed to agent
Memory trick: Power to end ≠ freedom from liability