What happens to a seller's agency agreement if the property is destroyed before closing?

In the event that a property is destroyed before closing, the seller's agency agreement typically terminates by force of law. This is because the subject matter of the agreement—the property itself—no longer exists, making it impossible for the agent to fulfill their obligations related to that specific property. An agency agreement is fundamentally tied to the property’s existence; therefore, if the property is no longer available for sale, the conditions of the agreement are no longer viable.

When a property is completely destroyed, it affects the very foundation of the sales process. As a result, both the seller and the agent are released from the obligations set forth in the agency agreement, since the goal of the agreement cannot be accomplished if the property is no longer intact. The principles of contract law recognize that the destruction of the property impacts the contractual obligation, leading to the conclusion that the agreement will terminate.