An Alberta associate acting as a transaction broker discovers that the property has a material latent defect that neither party is aware of. What is the associate's obligation under RECA rules?

Q: What is the correct answer to: An Alberta associate acting as a transaction broker discovers that the property has a material latent defect that neither party is aware of. What is the associate's obligation under RECA rules?

The correct answer is The associate must disclose the material latent defect to both parties, as the duty of honesty and competence applies regardless of the relationship type. Even in a transaction brokerage, the RECA Code of Conduct requires professionals to act honestly and with reasonable care and competence. Disclosing known material latent defects to both parties is mandatory regardless of relationship type. The Code prohibits participation in misrepresentation, which includes knowingly concealing defects.

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

Alberta's RECA rules create a baseline of honesty and competence that applies to all service relationships. While fiduciary duties are specific to agency, the prohibition against misrepresentation and the duty to disclose known material defects are universal. Transaction brokers cannot use their non-fiduciary status as a shield against disclosure obligations.

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

Agency or transaction brokerage — honesty is always required. Known defects must always be disclosed. No relationship type excuses concealing material facts. When the exam presents a transaction brokerage scenario with a defect, remember that honesty applies universally. The absence of fiduciary duties does not eliminate honesty obligations.

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

Do not confuse 'no fiduciary duties' with 'no duties at all.' Transaction brokers still must be honest, competent, and cannot conceal known defects.

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

A transaction broker facilitating a sale discovers evidence of water damage in the basement that neither the buyer nor seller has noticed. Despite having no fiduciary duties to either party, the transaction broker must disclose this finding to both parties before the transaction proceeds.

Question

Agency & Professional EthicsABHARD

An Alberta associate acting as a transaction broker discovers that the property has a material latent defect that neither party is aware of. What is the associate's obligation under RECA rules?

Answer Options

A

The associate has no disclosure obligation in a transaction brokerage since they owe no fiduciary duties

B

The associate must disclose the material latent defect to both parties, as the duty of honesty and competence applies regardless of the relationship type

C

The associate should disclose only to the buyer

D

The associate should advise both parties to hire their own inspectors without disclosing the defect