Agency Relationship
Definition
A legal relationship in which one person (the agent) is authorized to act on behalf of another person (the principal) in business transactions with third parties.
Example
A seller signs a listing agreement with a broker, creating an agency relationship. The broker becomes the seller's agent and owes fiduciary duties including loyalty, disclosure, and confidentiality.
Exam Tip
Know the THREE parties in agency: Principal (client), Agent (broker), and Third Party (customer). The agent owes fiduciary duties to the principal and fair dealing/honesty to the third party.
Related Agency Terms
Fiduciary Duty
The highest legal obligation of trust and confidence owed by an agent to their principal, requiring the agent to act solely in the principal's best interest.
Dual Agency
A situation where a single agent or brokerage represents both the buyer and the seller in the same real estate transaction.
Designated Agency
An arrangement where a brokerage assigns separate agents within the firm to represent the buyer and seller in the same transaction, allowing each client to have dedicated representation.
Transaction Brokerage
A non-agency relationship where the broker facilitates a real estate transaction without representing either party, owing limited duties of honesty, fairness, and competence to both.
Agency by Estoppel
An agency relationship created when a principal's actions or words lead a third party to reasonably believe that an agent has authority, and the principal fails to correct this belief.
Agency by Ratification
An agency relationship created when a principal approves or accepts an agent's previously unauthorized actions, effectively granting authority after the fact.
Frequently Asked Questions
Test Your Agency Knowledge
Practice with exam-style questions to make sure you can apply Agency Relationship and other agency concepts.