Agency Relationships: What are they? Real estate license exam questions.

Agency relationships can be complicated, so it is vital to understand how they work. Like many businesses, real estate success depends on a good network of individuals working together; with that comes many terms for who does what. Principals? Clients? Agencies? Today we break them down and simplify all of it. The Difference Between Principal, Customer, and Client For starters, the terms principal and client can be used interchangeably as they mean the same thing. However, the terms customer and client, or customer and principal are different. Often these terms get used interchangeably, but there is a slight difference, so let’s break them down. Principal and Client Definition: A principal or client is a party who has signed an agreement with an agent or more specifically a broker. In other words, it is any person directly involved in a contract, such as a buyer or a seller. Example: A seller who enters into a listing contract with a broker is a client of the broker. Customer Definition: A customer is a party that uses the services of a real estate agent but has not signed an agreement with an agent. Example: A seller who has yet to enter into a contract with a broker is a customer of the broker. The Difference Think of the terms like phases. A customer is the first phase, and your goal as an agent should be to make them enter the second phase and become your client. In the first phase, customers can call you up and ask you questions about a property, but legally you are not representing them. At this stage, they are not your clients. Both customers and clients can use real estate agents services; the difference is one party has signed a contract while the other has not. Agency or Principal-Agent Relationship So lets tie everything together. As we learned from above, a principal or client is any person involved in a contract, such as a buyer or a seller. In this relationship, the agent acts on behalf of the principal at all times. This relationship between the principal and the agent is called an agency or principal-agent relationship.