What is the difference between "actual authority" and "apparent authority" in real estate agency?

The distinction between actual authority and apparent authority is fundamental in real estate agency relationships. Actual authority refers to the specific powers that are granted to an agent by the principal, either explicitly through a written contract or verbally. This means that the agent has the legitimate authority to act on behalf of the principal within the scope defined by the principal.

Apparent authority, on the other hand, exists when a third party perceives that the agent has the authority to act on behalf of the principal, even if that authority has not been formally granted. This perception can arise from the actions and representations of the principal, suggesting that the agent is authorized to act in a particular way, even if the principal did not explicitly grant that authority.

Understanding this differentiation is crucial for both agents and clients to navigate their responsibilities and liabilities in real estate transactions. For instance, if a real estate agent negotiates a deal based on what a third party believes to be an authorized action due to the principal’s conduct, the principal may still be bound to that deal, despite not having formally granted such authority. This principle protects third parties who rely on the apparent authority of agents in good faith.