What defines an agency relationship?

An agency relationship is characterized by a fiduciary relationship of special trust and confidence between the principal (the person who authorizes another to act on their behalf) and the agent (the person who acts on behalf of the principal). This type of relationship is foundational in real estate transactions where agents are tasked with representing the interests of their clients in a professional manner.

In an agency relationship, the agent has a legal obligation to act in the best interest of the principal, which includes duties such as loyalty, disclosure, confidentiality, and accountability. The fiduciary nature emphasizes that the agent must prioritize the principal’s interests above their own and exercise a high degree of care, competence, and judgment in their dealings.

Interactions in real estate often require this trust because the agent may handle significant financial transactions, sensitive information, and critical negotiations. This structured agency relationship contrasts sharply with other options that imply a lack of commitment, responsibilities, or a more informal arrangement, which does not adequately define the serious nature of agency in legal and business contexts. The effectiveness of these transactions relies heavily on the trust and confidence established through this formal agency relationship.