National Real Estate Exam (PSI)General Principles of AgencyMedium
A seller signs a 60-day listing agreement for a single-family home. Thirty days into the listing, the home is completely destroyed by a fire before any offer is accepted. What is the legal effect on the listing agreement?
- AThe seller must formally revoke the agreement in writing for it to end
- BThe agreement remains valid and the broker must continue marketing the lot
- CThe agreement converts to a listing for the vacant land only
- DThe agreement is automatically terminated because the subject matter no longer exists
Show answer & explanationAnswer & explanation
Correct answer: D. The agreement is automatically terminated because the subject matter no longer exists
When the subject matter of an agency agreement is destroyed, the agency terminates automatically by operation of law because the purpose of the agreement can no longer be fulfilled. No further action is required by either party.
Why the other options are wrong
- A. Termination happens automatically by operation of law, not through formal revocation.
- B. There is no house left to market, so continuing the agreement makes no sense.
- C. Listing agreements do not automatically convert to a different type of listing without a new agreement.
Termination by Destruction of Subject Matter
An agency agreement automatically terminates when the property that is the subject of the agreement is destroyed, making the purpose of the agency impossible to fulfill.
- Occurs automatically, no notice required
- Similar to other terminations by operation of law
- Applies when performance becomes impossible
Memory trick: No house, no listing — destruction ends the deal instantly.