If you've ever delved into the world of real estate or escrow transactions, you've likely come across the term "principal" quite often. But do you really know what a principal is in real estate? In this article, we will explore who the principal is and their role in real estate and escrow.
Unveiling the Role of a Principal in Real Estate
So, who exactly is a principal? Put simply, the principals in a real estate sale transaction are the buyer and the seller. In the context of an escrow account, the principals are the parties who provide instructions to the escrow holder. As illustrated by the image below, the principal can be anyone involved in a contract: seller, buyer, broker, or property manager.
Image: The principal can be anyone involved in a real estate transaction.
When Does a Principal Become a Client?
A principal becomes a client when they agree to hire an agent or brokerage firm and sign an agreement to represent them in their real estate transaction. Surprisingly, you can be both the client and the principal. Once you become the client, your main task is to find an agent or brokerage firm that best suits your needs.
The Role of the Agent or Brokerage Firm
The agent or brokerage firm plays a crucial role in representing the seller and meeting their needs. They act as a liaison between the principal and the escrow holder. To ensure a successful relationship with your agent, consider the following factors:
- Your timeline: Find an agent who can accommodate your desired timeframe for buying or selling a property.
- Experience level: Consider an agent's experience and leadership qualities, especially if they are relatively new to the industry.
- Recent performance: Ask about the number of transactions an agent has completed in the past year to gauge their suitability for you.
- Availability: Ensure that your agent has the time and availability to address your needs.
- Local knowledge: Look for an agent who is familiar with the area and can provide you with valuable insights.
- Compatibility: It's vital to establish a good rapport with your agent, so find someone who is friendly, helpful, and genuinely interested in meeting your needs.
Since you will be working closely with your agent, it's essential to find the right fit for a successful real estate transaction.
Understanding the Principal-Agent Relationship
When a principal and an agent (or brokerage firm) collaborate in a real estate transaction, they form a close working relationship. Together, they aim to sell a property and complete the transaction. However, it's important to acknowledge that, due to the informational advantage of brokers, agents may at times prioritize their own interests over the best interests of the principal.
To protect the client, a fiduciary relationship is established.
Building a Fiduciary Relationship
A fiduciary relationship is a confidential and legal bond between two parties. Once a principal hires an agent or brokerage firm, the agent assumes a fiduciary duty to represent the principal, now a client. They must act honestly, fairly, and with the client's best interests in mind. Failure to fulfill fiduciary duties can result in accountability for the agent or brokerage firm.
Duties of an Agent
The National Association of Realtors has defined a set of fiduciary duties for agents to prioritize the principal's best interests. These duties include loyalty, confidentiality, disclosure, obedience, reasonable care and diligence, and accounting. By adhering to these duties, agents ensure that principals are not taken advantage of and are well-protected throughout the transaction.
Explore Real Estate Tips with New Venture Escrow
We hope this article has provided you with a clear understanding of the role of a principal in a real estate transaction. If you have more questions about principals, agents, or escrow, our experts at New Venture Escrow are here to guide you through every step of your real estate journey. Contact us today for personalized assistance and answers to all your queries.
