Final answer:
Farrah and Troy are the principals in the transaction, with Terry and Michael acting as their respective agents.
Step-by-step explanation:
In the given scenario, Farrah and Troy are the principals in this transaction. Terry, who represents Farrah, and Michael, who represents Troy, are the agents. According to the principles of agency in real estate transactions, the principal is the person who has authorized an agent to act on their behalf. In this case, Farrah, as the seller, has authorized Terry to act on her behalf, which makes Farrah a principal. Similarly, Troy, as the buyer, has authorized Michael to act on his behalf, which makes Troy the other principal in this transaction. Therefore, the correct answer is (b) Farrah and Troy.