Non-real estate agency relationships can be divided into a few different ways. Now that we understand how real estate agency relationships are created let’s talk about the different types of relationships. The Different Types of Real Estate Agent Relationships Whether or not your relationship is legal or not depends on what state you live in. Unintentionally you just established an implied contract. However, because they were your friends, you completely forgot to do the paperwork stating you are representing them. You help them search and eventually find something with them. So maybe one party suggests creating an agency relationship and intends to but forgets.Įxample: Let’s say you have some friends that are looking for a house. It can occur by accident or intentionally. Congratulations, you just established an express contract! Implied Contractsĭefinition: An implied contract occurs when an agency relationship is created without the proper legal steps. You bring them to your office, and they fill out all the appropriate paperwork. It’s worth noting in most states, the agreement must be in writing, but there are a few exceptions.Įxample: A client sees your ad in a newspaper and calls you up to help them find a house. This is the most common method of creation for agency relationships. In other words, they sat down and wrote a contract stating their relationship. Express Contractsĭefinition: An express contract occurs when both parties legally establish an agency relationship. An agency relationship is typically created in two ways: express and implied. How Can an Agency or Principal-Agent Relationship Be Created?Īn agency relationship can be established either by an agreement between parties (typically in the form of a contract) or by an action.

This means an agent is expected to exercise discretion when acting on your behalf, and they must work with high standards of good faith and loyalty.

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

Principal vs principle real estate