A real estate company discovers that one of their salespersons has been taking secret commissions from mortgage brokers for client referrals. What are the potential consequences under the Real Estate Agents Act 2008?
Correct Answer
D) Both the salesperson and the licensed company may face disciplinary action
Under the Real Estate Agents Act 2008, both the individual licensee and the company can face disciplinary action from REAA for breaches of professional standards. The company has supervisory responsibilities and may be held accountable for failing to prevent or detect such misconduct by their employees.
Why This Is the Correct Answer
Taking undisclosed referral payments breaches the salesperson's duty to act in clients' best interests (Rule 9.1) and may be an offence under the Secret Commissions Act 1910. The company, as the licensed agent, must supervise its salespeople (s 50, Rule 8.3), so a complaint can lead to disciplinary orders against both.
Why the Other Options Are Wrong
Option A: Only the salesperson faces action, as the company did not take the payments
A company agent must ensure its salespeople are properly supervised (Rule 8.3), so failing to detect secret commissions can expose it too.
Option B: Only the company's internal disciplinary procedures apply to the salesperson
Secret commissions are a matter for the Authority's complaints process and possibly the Secret Commissions Act 1910, not internal discipline alone.
Option C: The company must compensate clients but faces no disciplinary consequences
The Act's disciplinary regime applies to company licensees as well; compensation orders sit alongside censure, fines and other orders.
Deep Analysis of This Agency Practice Question
This question examines the principle of vicarious liability and supervisory responsibility under the Real Estate Agents Act 2008. When a salesperson engages in misconduct like taking secret commissions, both individual and corporate accountability come into play. The Act establishes that real estate companies have ongoing obligations to supervise their staff and maintain professional standards. Secret commissions represent a serious breach of fiduciary duty and professional conduct rules. The REAA can pursue disciplinary action against both parties because the company has failed in its supervisory duties, while the individual has directly violated professional standards. This dual accountability ensures comprehensive enforcement and encourages companies to implement robust compliance systems. The principle reflects broader regulatory trends where organizations cannot simply distance themselves from employee misconduct but must demonstrate active supervision and control.
Background Knowledge for Agency Practice
Companies can hold an agent's licence under the Real Estate Agents Act 2008 and are subject to the same complaints and disciplinary process as individuals. A complaints assessment committee can censure, order training, fine (up to $10,000 for an individual or $20,000 for a company) and order compensation; the Disciplinary Tribunal can also suspend or cancel a licence. Section 128 requires rebates, discounts and commissions the agent receives on expenses to be disclosed in the agency agreement.
Memory Technique
Remember 'BOTH get in trouble' - when a salesperson breaches professional standards, BOTH the individual AND the company can face REAA disciplinary action. Think of it like a sports team where both the player who commits the foul and the coach who failed to control them can be penalized.
When you see questions about employee misconduct in real estate, immediately think 'BOTH' - both the individual and the company are likely to face consequences under the supervisory responsibility principle.
Exam Tip for Agency Practice
When a salesperson breaches the rules, check both the individual's conduct and the agent's supervision; both can be disciplined.
Real World Application in Agency Practice
A real estate company discovers their top salesperson has been receiving $500 payments from a mortgage broker for each client referral over six months. The REAA investigation finds the company had no systems to monitor such arrangements and failed to detect obvious signs like the salesperson's sudden increase in mortgage referrals. Both the salesperson and company face disciplinary proceedings - the individual for taking secret commissions and breaching fiduciary duties, and the company for inadequate supervision and failure to implement proper compliance systems.
Common Mistakes to Avoid on Agency Practice Questions
- •Thinking only the individual faces consequences
- •Believing companies can avoid liability through ignorance
- •Assuming internal discipline is sufficient for serious breaches
Related Topics & Key Terms
Key Terms:
More Agency Practice Questions
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Which of the following situations would create a conflict of interest requiring disclosure by a real estate licensee?
Sarah is a licensed salesperson working for ABC Real Estate. When showing a property to buyers, who does she primarily represent?
Under the Real Estate Agents Act 2008, what is the primary duty that a real estate agent owes to their client?
Which licence allows a person to carry out real estate agency work for an agent, but only under supervision?
- → Under section 126 of the Real Estate Agents Act 2008, what must happen after the client signs an agency agreement for the agent to be entitled to commission?
- → A licensed agent discovers that their salesperson has been providing advice about tax implications of a property investment without appropriate qualifications. What is the agent's responsibility?
- → An agency agreement contains a clause stating that the agent's commission is payable even if the property is sold by the vendor directly to a buyer introduced by the agent during the agency period, but the sale settles after the agency expires. Is this clause enforceable?
- → What must a real estate agent disclose to a potential purchaser when showing a property?
- → Under a sole agency agreement, when is the vendor still liable to pay commission to the agent?
- → Sarah holds a salesperson's licence and works for ABC Real Estate. When presenting an offer to a vendor, who is legally responsible for ensuring all disclosure obligations are met?
- → A real estate agent discovers that a property has a leaky roof after the agency agreement is signed but before any offers are received. What is the agent's obligation?
- → Which of the following allows an agent to end an agency agreement before its expiry date?
- → Under the Real Estate Agents Act 2008, what is the primary fiduciary duty that a real estate agent owes to their client?
- → What must a licensee do when they become aware of a material defect in a property they are marketing?
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A real estate agent receives two offers on a property at the same time. What is their primary obligation?
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A real estate company's sole agency expires on Friday. The agreement entitles it to commission on a later sale to any buyer it introduced during the term. On Thursday it introduces a buyer whose offer is declined; on Monday that buyer buys through another agent. What is the company's position?