National Real Estate Practice Exam

What document is primarily needed to establish a client-principal relationship?

1. Verbal Agreement

2. Written Contract

3. Business License

4. Letter of Intent

The correct answer is: Written Contract

The primary document needed to establish a client-principal relationship is a written contract. This document serves to formalize the agreement between the parties involved, detailing the rights and responsibilities of both the client and the principal. A written contract provides clear evidence of the terms agreed upon, which can be crucial in legal situations or disputes that may arise. A verbal agreement, while potentially valid, lacks the same level of clarity and enforceability as a written contract. It can lead to misunderstandings between parties, as the specifics of what was agreed upon may vary in recollection. A business license is not relevant to establishing a client-principal relationship. While it is necessary for legal operations in real estate, it does not serve to define the relationship between a client and an agent. A letter of intent may outline preliminary commitments between parties but does not create a binding contract that establishes a principal-client relationship. It often serves as a precursor to a more formal written contract but lacks the definitive terms associated with a client-principal agreement. In summary, a written contract is essential for clearly defining the professional relationship, ensuring both parties understand their obligations, and providing a framework for accountability.