What is meant by 'agency relationship' in real estate?

In real estate, an "agency relationship" refers to a situation where one party, known as the agent, represents another party, the principal, in transactions, negotiations, or other matters. This relationship involves legal obligations and responsibilities on the part of the agent to act in the best interests of the principal. The agent is expected to provide advice and guidance, keep the principal informed, and uphold the fiduciary duties such as loyalty and disclosure.

The nature of this relationship is formal and typically established through a written agreement, which outlines the expectations and duties of both parties. This structure is essential in real estate transactions to ensure that the interests of the principal are protected and that the agent operates within the legal framework governing real estate practices.