If an editor likes a manuscript and offers a contract, the agent forwards this information to the author.
At this point, several of the publishers might respond and say they love the manuscript and are interested in it. Someone I know in my local writing group had this happen. So the agent took the manuscript to auction and the big publishers bid on it and the highest bidder won! It was very exciting.
Other times, one publisher might offer a contract but the terms aren’t very good. After the author and agent discuss this and agree on a response, the agent might tell the editor they’re turning down the contract. I’ve seen this happen, too.
Usually, however, the terms are okay when a contract is offered. At this point the agent goes back and forth with the editor and discusses the contract both with the author and with the publisher until a mutual agreement is settled. The agent is the go-between. Meaning that the author talks to the agent about what she likes or don’t like in the contract and the agent goes and talks with the publisher about it.
I remember one book contract that happened was a very interesting process for me to watch. The agent made an offer to change some of the wording on the contract. The publisher said flat out no to everything, I think. The agent came back with a different offer and the publisher said well, okay, to some of the things and still no on others. In the end, some of the “nos” the publisher had initially stated came back as “yeses.” It kind of felt like a bunch of saber rattling going on, but in the end we were all satisfied with the results.
Then, after the contract is signed, the agent is the one who gets the advance checks and royalty checks in the mail directly from the publisher. She deducts her 15% fee and then mails you a check.
Then you start the process all over again with your next manuscript.