An agent discovers a material defect in their listing that the seller hasn't disclosed. What is the agent's obligation?

Q: What is the correct answer to: An agent discovers a material defect in their listing that the seller hasn't disclosed. What is the agent's obligation?

The correct answer is Advise the seller to disclose it and refuse to continue if they won't. Option C correctly balances fiduciary duty with legal obligations. Under TRESA, RESA, and provincial regulations, agents cannot participate in misrepresentation or fraud. The agent must first advise the seller of their disclosure obligations, giving them opportunity to comply. If the seller refuses, the agent must withdraw from representation to avoid becoming complicit in fraudulent non-disclosure. This approach protects the agent's license while fulfilling both client duties and legal requirements.

Q: What background knowledge is needed for this Agency & Professional Ethics question?

Material defects are physical problems that significantly affect property value, safety, or desirability. Under TRESA (Ontario), RESA (Alberta), and similar provincial acts, sellers and their agents must disclose known material defects. Agents have fiduciary duties including loyalty, confidentiality, and acting in the client's best interests, but these duties don't override legal obligations. Misrepresentation can result in license suspension, civil liability, and criminal charges. The principle of informed consent requires buyers to have material information before making purchase decisions.

Q: What is a good way to remember the answer to this Agency & Professional Ethics question?

CAR: Counsel, Advise, Refuse. When discovering undisclosed material defects: Counsel the seller about disclosure obligations, Advise them of legal requirements and consequences, Refuse to continue if they won't comply. Think of a car mechanic who discovers brake problems - they must tell the owner and refuse to certify the car as safe if repairs aren't made. When you see questions about undisclosed material defects or conflicts between client loyalty and legal obligations, remember CAR. The agent must always counsel first, then refuse participation if the client won't comply with legal requirements.

Q: What exam tip applies to this Agency & Professional Ethics question?

Look for the option that gives the client a chance to do the right thing first, then protects the agent from legal liability. The correct answer usually involves counseling the client about their obligations before taking action.

Q: How does this Agency & Professional Ethics concept apply in real world practice?

An agent listing a century home discovers significant foundation issues during a showing that the seller hasn't mentioned. The seller claims they didn't know and asks the agent to stay quiet since disclosure might kill the sale. The agent must explain the legal requirement to disclose material defects, document this conversation, and insist the seller add this to the disclosure statement. If the seller refuses, the agent must terminate the listing to avoid liability for fraudulent non-disclosure.

Question

Agency & Professional EthicsDisclosure ObligationsMEDIUM

An agent discovers a material defect in their listing that the seller hasn't disclosed. What is the agent's obligation?

Answer Options

A

Keep the information confidential as it came from the client

B

Disclose it to potential buyers immediately

C

Advise the seller to disclose it and refuse to continue if they won't

D

Only disclose if specifically asked by buyers