What does "principal" refer to in a real estate agency relationship?

In the context of real estate agency relationships, "principal" refers to the individual who authorizes an agent to act on their behalf in a transaction. This relationship is fundamental in real estate, as it establishes the legal authority and responsibilities between the parties. The principal can be a seller, buyer, or property owner who delegates specific powers to the agent, allowing them to represent their interests in negotiations, listings, or sales.

The role of the principal is critical as it defines who has the ultimate control over decisions related to the property or transaction in question. The agent, in turn, must act in the best interest of the principal, adhering to their instructions and fiduciary duties.

While a real estate broker does manage transactions and represents principals, they themselves may be acting on behalf of the principal rather than being a principal in the relationship. Similarly, while buyers and property owners can be principals, the term encompasses any individual who grants authority to an agent, making the broader definition significant for understanding agency relationships in real estate.