Business Law: The Principal-Agent Relationship. People, especially business owners, routinely hire or designate other people to perform tasks on their behalf. The principal–agent problem, in political science and economics occurs when one person or Common examples of this relationship include corporate management (agent) and shareholders (principal), politicians (agent) and voters  ‎Overview · ‎Employment contract · ‎Contract design · ‎Incentive structures. The principal-agent relationship in real estate is one built upon trust. In this lesson learn the legal duties an agent and a principal must carry.


Author: Madie Schmitt
Country: Sri Lanka
Language: English
Genre: Education
Published: 23 December 2016
Pages: 537
PDF File Size: 27.57 Mb
ePub File Size: 33.39 Mb
ISBN: 737-7-87995-796-2
Downloads: 69405
Price: Free
Uploader: Madie Schmitt


The Principal-Agent Relationship & Duties in Real Estate

The court held there was a breach of contract and the agent was entitled to principal agent relationship benefits he would have received under the agreement. Duty to indemnify the agent: As an example, a landowner hired two agents to dig a ditch, but did not tell the agents that a phone line ran where the trench was going to be principal agent relationship.

The agents severed the line and the phone company sued them.


Duty to deal fairly and in good faith with the agent: On the flip side, you have an incentive to pay the roofer because you are confident that he will fix your roof. The Principal-Agent Problem The principal-agent problem arises when the incentives of the principal and agent conflict.

Both the principal and agent strive to maximize their utility, but by doing so, either the principal or the agent becomes worse off as a result. Let's say that you pay your roofer by the hour. Co-workers principal agent relationship become reluctant to help out others and might even sabotage principal agent relationship effort instead of increasing their own effort LazearRob and Zemsky This is supported empirically by Drago and Garvey Why then are tournaments so popular?

Firstly, because—especially given compression rating problems—it is difficult to principal agent relationship absolutely differences in worker performance.


Tournaments merely principal agent relationship rank order evaluation. Secondly, it reduces the danger of rent-seekingbecause bonuses paid to favourite workers are tied to increased responsibilities in new jobs, and supervisors will suffer if they do not promote the most qualified principal agent relationship.

Thirdly, where prize structures are relatively fixed, it reduces the possibility of the firm reneging on paying wages. As Carmichael notes, a prize structure represents a degree of commitment, both to absolute and to relative wage levels. Lastly when the measurement of workers' productivity is difficult, e.

Tournaments also promote risk seeking behavior. In essence, the compensation scheme becomes more like a call option on performance which increases in value with increased volatility cf.

The Principal-Agent Relationship & Duties in Real Estate |

If you are one of ten players competing for the asymmetrically large top prize, you may benefit from reducing the principal agent relationship value of your overall performance to the firm in order to increase your chance that you have an outstanding performance and win the prize.

The principal is the individual who is selling the real estate property, while the agent is the licensed broker who has been contracted to represent the seller.

In a complex market, it is a responsible choice for a seller to hire an agent principal agent relationship handle the intricate processes that come along with selling real estate.

However, due to the informational advantage principal agent relationship brokers, it is possible for an agent to act in their own interest as opposed to the best interest of the principal.

What Is a Principal-Agent Relationship?

For this reason, it is important for all principals and agents to understand the principal-agent relationship principal agent relationship to work in ways that are mutually beneficial. Authority that arises when a principal, by either words or actions, principal agent relationship a third party to believe that an agent has principal agent relationship to act, even though the agent has no express or implied authority to act with regard to the particular matter at hand.

When an unforeseen situation demands action to protect or preserve the property and rights of the principal, but the agent is unable to contact the principal, the agent has emergency authority to act on the principal's behalf.

The express or implied affirmation of a previously unauthorized contract made by a purported agent.

An principal agent relationship has the duty to act solely for the benefit of his or her principal, and not in the interest of the agent or a third party.