A broker and a principal maintain an agency relationship, which is a fundamental concept in real estate transactions. In this context, the broker acts on behalf of the principal in dealings with third parties. This means that the broker has a fiduciary duty to represent the principal's interests, including loyalty, full disclosure, and confidentiality.
Additionally, the agency relationship is established through an agreement, often formalized in a listing agreement or buyer's representation agreement, where the broker has the authority to act in various capacities – such as negotiating offers or marketing a property. This relationship is vital for ensuring that the principal's needs and objectives are effectively communicated and pursued within the realm of real estate transactions.
Other concepts mentioned, like an arm's length transaction, refer to dealings where both parties act independently without a fiduciary relationship, which is different from the agency relationship. Caveat emptor, or "buyer beware," emphasizes the buyer's responsibility to inspect the property, and limited reliance is not a standard term associated with agency in real estate contexts. Thus, the agency relationship is the most accurate descriptor of the connection between a broker and a principal.