PSI Virginia Real Estate Practice Exam 2025 - Free Real Estate Practice Questions and Study Guide

In a real estate transaction, a principal refers to a party who has a direct interest in the outcome of that transaction. This includes individuals or entities such as buyers, sellers, landlords, and tenants, who are actively engaged in the negotiation and execution of the deal. The role of a principal is significant because they are the ones who make decisions regarding the terms and conditions of the transaction.

In contrast, a third-party observer does not have a stake in the transaction and does not influence its outcome; hence, they do not qualify as a principal. An agent representing a client acts on behalf of the principal and represents their interests but is not a principal themselves. Similarly, while the broker oversees the transaction and facilitates communication between parties, they are not classified as a principal since they are not directly involved in the buying, selling, or leasing of the property. Therefore, identifying the principals as those parties actively involved in the transaction is essential for understanding their roles and responsibilities.