How is agency defined in real estate?

Agency in real estate is defined as a relationship in which one party authorizes another to act on their behalf. This concept is fundamental to real estate transactions because it establishes a legal relationship between the principal (the person who grants authority) and the agent (the person authorized to act). In this context, the agent has the duty to represent the best interests of the principal, whether the principal is a buyer, seller, landlord, or tenant.

In real estate, this agency relationship can take several forms, including seller's agents, buyer's agents, and dual agents, each with specific rights and responsibilities. The principle emphasizes the importance of trust and reliance in the agency relationship, which is foundational to how real estate transactions are typically conducted.

Other options do not accurately capture the definition of agency within the context of real estate. For instance, direct negotiation between buyers and sellers does not involve an agency relationship, as there is no authorized representative acting on behalf of either party. A contract between a landlord and tenant describes a lease agreement rather than the agency relationship. Lastly, methods for calculating commissions pertain to compensation in real estate transactions but do not define agency itself.