What does the term "principal" refer to in a real estate transaction?

In a real estate transaction, the term "principal" refers to the main party involved, which can be either the buyer or the seller. This designation is significant because principals are the individuals or entities that have the ultimate legal and financial responsibilities associated with the transaction. They are the ones entering into contracts, making decisions about the property, and engaging in negotiations.

Understanding the role of principals is critical, as it distinguishes them from other parties involved in the transaction, such as agents or lenders. Agents work on behalf of the principals but do not have ownership or direct responsibility for the terms of the transaction. Moreover, while financial institutions provide necessary funding and may play a vital role in facilitating a sale, they are not considered principals in the same way buyers or sellers are. In this context, focusing on who has the authority and ownership in the transaction is key to grasping the concept of principals within real estate dealings.