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Principal (In Real Estate)

DEFINITION

Loan amount. Employer of an agent. Parties of a real property transaction.

EXPLANATION

A principal, or client, is any party that uses an agent in his or her negotiations with a third party. Agents can represent buyers, sellers, and renters in the buying, selling, transferring, or renting of real estate in return for a commission.

It is unlawful for a broker or agent to represent the interests of a principal in real estate without proper licensing. Actions that require licensing include:

Buying, selling, or offering to buy or sell property on behalf of a principal, including mobile homes.

Renting, or offering to rent, property for a principal

Representing a principal in a search to locate property for purchase or lease

Securing a loan for a principal. (An unlicensed agent has the ability to find a loan for a principal, but he or she cannot represent the principal in a loan transaction.)

Representing the sale or purchase of a real estate contract or promissory note

Issuing, selling, exchanging, or negotiating the transfer of securities

Collecting an advance fee for the promotion of a property

Agent Owes the Principal the Following Fiduciary Duties:

Accounting

Confidentiality

Disclosure

Loyalty

Obedience

Reasonable care and skill

Agency Relationship and Principal

An agency relationship includes the principal and agent. The principal is the buyer or seller who delegates buying and selling duties to an agent to act on his or her behalf. Although agents/brokers represent the principal, they are, however, not entitled to act on behalf of the principal. Agents can only act at the discretion of the principal. When executed, an agency relationship automatically creates a fiduciary duty.

There are a variety of agency relationships. In an overwhelming majority of real estate transactions, the real estate broker assumes the role of the agent for the principal. An agent’s roles may also extend beyond the standard roles of buying, selling, or exchanging property. When the duty of the agent extends beyond his or her normal role, the agent would then be considered a special agent.

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