Principal

Key Takeaways

• In agency law the principal is the party who authorizes someone else to act on their behalf in dealings with third parties.
• RCW 18.86.010 defines a principal as a buyer or a seller who has an agency relationship with a broker.
• Principal and client name the same person; principal is the statutory word and client is the everyday one.
• Under RCW 18.86.090 a principal is generally not liable for a broker's act, error, or omission unless the principal participated in it or authorized it.

What It Means

A principal is the party who authorizes another person to act on their behalf. In real estate that means the buyer or the seller who has appointed a broker to represent them, and the broker acting under that authority is the Agent.

The word is doing narrower work than it looks. A principal is not merely someone named in the contract, and not simply the person paying the bill. A principal is the person on whose behalf another party is authorized to act. That authorization is what turns an ordinary licensee into an agent with duties running to one side of the deal, which is why the statutes describe representation in terms of appointing a broker rather than in terms of who hired whom or who wrote the check.

Principal is also the formal name for the person most people call the Client. Course material, listing forms, and office conversation lean on client, while Washington's agency chapter says principal throughout, including in the sections that spell out what an agent owes. Expect exam questions to use the statutory word even when the working world does not.

How It Works in Washington

In Washington, RCW 18.86.010 defines a principal as a buyer or a seller who has an agency relationship with a broker, and defines an agent as a broker who has an agency relationship with a principal. The two definitions lock together, so there is no principal without an appointed broker and no agent without a principal. RCW 18.86.020 supplies the mechanism: the firm enters a services agreement with the principal, names the broker appointed to act, sets the term, states whether the arrangement is exclusive, and records any consent to limited dual agency.

Two Washington rules reshape the common law picture of a principal. RCW 18.86.110 states that the duties in the chapter are statutory duties and not fiduciary duties, and that the chapter supersedes the common law fiduciary duties an agent owed a principal, so Washington answers turn on the Statutory Duties list rather than on the classic fiduciary vocabulary. RCW 18.86.090 then limits vicarious liability: a principal is not liable for an agent's act, error, or omission arising out of the agency relationship unless the principal participated in or authorized it, or the principal benefited from it and a court finds it highly probable that the claimant could not enforce a judgment against the agent. Our guide to Washington's written services agreements shows how the appointment is documented.

Example

Ana owns a house in Olympia and signs a listing services agreement with a local firm, which appoints Tomas as the broker for the listing at $685,000. Ana is the principal and Tomas is her agent. Ana tells Tomas privately that she will take $660,000 if she can close by August 30.

An offer arrives at $650,000. Tomas cannot reveal Ana's $660,000 floor, and he presents the offer the day it lands because RCW 18.86.030(1)(c) requires it. Ana counters at $672,000 and the buyer accepts, which is $22,000 above the first offer and $13,000 under the asking price. Two months after closing the buyer claims Tomas misdescribed the septic system. Under RCW 18.86.090, Ana is not on the hook for that error unless she participated in it or authorized it, or she benefited from it and the court finds the buyer highly unlikely to collect from Tomas. Being the principal made Ana the decision maker on price, not the guarantor of her broker's mistakes.

Common Mistakes and Exam Traps

• Principal and principle are different words; the agency term is principal, spelled the same way as the loan balance.
• Principal in a financing question means the amount borrowed, so check whether the question is about agency or about payments before answering.
• Principal is not a license level. Washington's license categories under RCW 18.85.011 are broker, managing broker, and designated broker, and principal describes the represented party instead.
• Washington replaced common law fiduciary duties with the statutory duties in chapter 18.86 RCW, so a principal is owed what the statute lists rather than the classic fiduciary set.