<--Back to Wiki Home
Define Principal in Real Estate
Principal:
In the context of real estate, "principal" has two main meanings:
1. The employer in an agency relationship, to whom the agent owes fiduciary duties.
2. The loan balance to which interest charges are applied.
Example:
For example, let's say that Jane is a real estate agent who is hired by John to help him buy a house. John is the principal in this situation, and Jane owes him certain duties, such as loyalty, confidentiality, and honesty.
"A Deep Dive for Real Estate Agents and Appraisers"
Here are examples for both meanings of "principal" in the context of real estate:
Employer in an agency relationship:
Let's say that John is looking to buy a house, but he doesn't have much experience with real estate transactions. He decides to hire Jane, a licensed real estate agent, to help him with the process. In this situation, John is the principal, because he is the person who has hired Jane to act on his behalf. As the principal, John has the right to expect that Jane will act in his best interests, keep his confidential information private, and provide him with accurate and honest advice.
Loan balance to which interest charges are applied:
Now let's say that John has found a house he wants to buy, and he decides to take out a mortgage to finance the purchase. The amount of money that John borrows from the bank is called the principal of the loan. This is the initial amount of money that John owes the bank, and it is the amount on which interest charges will be calculated. For example, if John borrows $200,000 to buy the house, the principal of the loan is $200,000.
"Wit & Whimsy with the Dumb Ox: Unlocking Knowledge with Rhyme:"
When John hires Jane to help him find a home,
He becomes the principal, and Jane's not alone.
She owes him trust, loyalty, and more,
And she'll work hard to help him find what he's looking for.
But the principal can also mean the loan amount,
On which interest is charged, like a bank account.
When you borrow money to buy a house,
The principal is what you owe - don't grouse!
So remember, my friend, whether you're an agent or a buyer,
The principal is a word that's important to acquire.
It means the boss you owe loyalty to,
Or the amount of money you'll pay back - that's true!