If one day you found out that your landlord is NOT the actual owner of the house, what could happen to you? Part 3.
The Undisclosed Principal, is a unknown principal. In agency contract, the principal gives an instruction to an agent to contract with a third party. In a scenario of selling a house, the owner (principal) appoints an agent to sell his house to a buyer (3rd party).
What is important is that the deal with the unknown or undisclosed principal is on paper only. It is like buying an insurance. Do you actually know who is the insurance company owner? Or in a simple word – who is to protect you? Like you have agreed to engage a bodyguard via a company, but you never seen him. One day, when you need this bodyguard, you found out that he is a teenage GIRL! Does that matter? (Watch the movie “Kick Ass”).
In contract, this undisclosed bodyguard is not important! As long as your protection is rendered. So, you do NOT need to worry about what you bought – a contract for protection.
In REAL ESTATE, this happens everyday. You do NOT want outsider to know that you have an intention to sell or purchase a property. This is crucial because it is price sensitive. Imagine that you as multi-million corporation is coming to buy the property! The price will be inflated many folds! Surely, you want to buy at a lower price. You need to have a strategy. Someone who can get you a lower price.
The best way is by undisclosed principal. You engage a real estate agent. He keeps your identity a secret. He goes out to source for properties that you want. He is first, a professional in the field (he knows what he is doing), and second, he can conceal your identity (which is important as your strategy). He is acting as if he is the principal, but in fact, you are the real principal at the back. You are the undisclosed principal.