PSI Virginia Real Estate Practice Exam

What must contracts regarding agency relationships include to protect customer interests?

1. Clear commission structures

2. An explanation of the difference between principal and customer

3. Terms for dispute resolution

4. Specific listing requirements

The correct answer is: An explanation of the difference between principal and customer

Contracts regarding agency relationships must include an explanation of the difference between principal and customer to protect customer interests. This is essential because it clarifies the roles and obligations of all parties involved in the transaction. By clearly defining what it means to be a principal and what it means to be a customer, individuals can better understand their rights and responsibilities. The principal is usually the party who hires the agent (either a buyer or seller in a real estate transaction), and the agent owes them certain fiduciary duties. Conversely, a customer, who is not represented by the agent, does not receive the same level of service or loyalty. Understanding these distinctions helps customers make informed decisions, ensuring they know where their interests lie and how they are being represented in the transaction. This delineation protects their interests by preventing misunderstandings about the nature of the relationship and the services being provided. While clear commission structures, terms for dispute resolution, and specific listing requirements are important aspects of real estate transactions, they do not specifically address the foundational understanding of the relationship between principal and customer, which is crucial for informed consent and protection in agency dealings.