National Real Estate Practice Exam

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Which is true regarding a client-principal relationship?

It exists without a written contract
It is a formal agency relationship
It is always temporary
It does not require any agreement

The correct answer is: It is a formal agency relationship

A client-principal relationship is characterized by a formal agency relationship, which is defined by the authority granted to an agent by the principal. In real estate, the agent (often a broker or salesperson) acts on behalf of the principal (the client), with the responsibility to uphold the client’s interests throughout the transaction. Formal agency relationships often involve a written agreement, such as a listing agreement or a buyer's representation agreement, which outlines the terms and conditions of the relationship, the scope of authority, and duties owed to the principal. This contractual agreement enhances clarity and provides legal protection for both parties, ensuring that the agent is fully accountable to act in the best interest of the client. While it's true that some forms of agency might arise informally, the essence of a client-principal relationship in real estate is fundamentally formal, making clarity in the responsibilities and obligations crucial for an effective partnership in the transaction process.