A salesperson discovers that a property they are marketing has a leaking roof that the vendor has not disclosed. What should they do?
Correct Answer
D) Advise the vendor to disclose the leak and make sure buyers are told
The agent has a duty to ensure material facts are disclosed and must advise the vendor to properly disclose known defects. Failing to disclose material information could result in liability for both the vendor and agent under consumer protection laws.
Why This Is the Correct Answer
Rule 10.7 requires a licensee to disclose known defects to customers, and Rule 6.4 forbids withholding information that should in fairness be provided. The salesperson should tell the vendor the leak has to be disclosed and ensure buyers learn of it; if the vendor refuses, Rule 10.8 means the agency cannot continue to act.
Why the Other Options Are Wrong
Option A: Keep marketing without mentioning the leak so the listing is not lost
Rule 10.7 requires known defects to be disclosed to customers; protecting the listing is no excuse.
Option B: Raise the leak only once a buyer has made an offer, so interest is not deterred
Holding back until an offer is made lets buyers commit without a known material fact, which Rule 6.4 forbids.
Option C: Mention the leak only if a prospective buyer asks directly about the roof
Disclosure of known defects does not depend on being asked; waiting for a question breaches Rule 10.7.
Deep Analysis of This Agency Practice Question
This question tests understanding of disclosure obligations under New Zealand real estate law, specifically the duty of care owed by agents to both vendors and purchasers. The Real Estate Agents Act 2008 establishes that agents must act with due care, skill, and diligence, which includes ensuring material facts are disclosed. A leaking roof is clearly a material defect that could significantly impact a property's value and a buyer's decision-making process. The agent's discovery of this undisclosed defect creates both an ethical and legal obligation to address it properly. This connects to broader consumer protection principles and the agent's professional duty to maintain market integrity. Failure to handle this correctly could result in disciplinary action, civil liability, and damage to professional reputation. The question emphasizes the proactive responsibility agents have when they become aware of material information that affects a property transaction.
Background Knowledge for Agency Practice
The duty comes from the Professional Conduct and Client Care Rules 2012, not the Property Law Act 2007. Rule 10.7 requires known defects to be disclosed to customers, Rule 10.8 bars continuing to act for a client who directs that they be withheld, and Rule 6.4 forbids misleading customers or withholding information they should have. Misleading conduct in trade can also breach the Fair Trading Act 1986.
Memory Technique
Remember DISC: Discover (agent finds defect), Inform (tell the vendor), Share (include in marketing), Comply (with legal obligations). Like a computer disc that stores all information transparently, agents must ensure all material facts are stored and accessible to potential buyers.
When facing disclosure questions, think DISC - have you Discovered something material? You must Inform the vendor, Share it publicly, and Comply with legal requirements. This ensures you follow the proper sequence for handling material defects.
Exam Tip for Agency Practice
Known defect: tell the vendor it must be disclosed, disclose it to buyers, and stop acting if the vendor insists on silence.
Real World Application in Agency Practice
A salesperson conducting a property inspection notices water stains on the ceiling and discovers the vendor hasn't mentioned roof issues. Following proper procedure, they immediately advise the vendor about the disclosure obligation, recommend getting a building report, and ensure the roof condition is mentioned in all marketing materials and property files. This protects all parties, maintains professional standards, and prevents potential legal issues that could arise from non-disclosure of this material defect.
Common Mistakes to Avoid on Agency Practice Questions
- •Thinking the agent can choose what to disclose based on commercial interests
- •Believing disclosure is only required if buyers ask specific questions
- •Assuming material defects can be disclosed after offers are received
Related Topics & Key Terms
Key Terms:
More Agency Practice Questions
A real estate agent receives two offers on a property at the same time. What is their primary obligation?
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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