A vendor instructs their agent not to disclose a known building defect to potential purchasers. What should the agent do?
Correct Answer
C) Refuse to continue acting for the vendor and terminate the agency
An agent cannot participate in misleading or deceptive conduct, even when instructed by their principal. If a vendor refuses to allow proper disclosure of material defects, the agent should terminate the agency relationship rather than breach their professional and legal obligations.
Why This Is the Correct Answer
Option C is correct because the Real Estate Agents Act 2008 requires agents to act honestly and professionally. When a vendor instructs concealment of material defects, continuing the agency would force the agent to breach their legal obligations under both the REA 2008 and Fair Trading Act. Terminating the agency relationship is the only way to avoid participating in potentially misleading or deceptive conduct while maintaining professional integrity and legal compliance.
Why the Other Options Are Wrong
Option A: Follow the vendor's instructions as they are the principal
Following the vendor's instructions would require the agent to participate in misleading conduct by omitting material information. This breaches the agent's duties under the Real Estate Agents Act 2008 to act honestly and could result in disciplinary action, prosecution under the Fair Trading Act, and civil liability.
Option B: Disclose the defect despite the vendor's instructions
Disclosing against the vendor's explicit instructions would breach the agent's fiduciary duty to their principal and could constitute a breach of the agency agreement. While disclosure might seem ethical, it violates the fundamental principal-agent relationship without proper termination of the agency first.
Option D: Seek legal advice before proceeding with any marketing
While seeking legal advice might seem prudent, it delays necessary action and doesn't resolve the fundamental conflict. The agent already knows they cannot legally conceal material defects, so continuing to market the property while seeking advice would still constitute participation in potentially misleading conduct.
Deep Analysis of This Agency Practice Question
This question tests understanding of the fundamental conflict between agent duties to principals versus professional obligations under the Real Estate Agents Act 2008. When a vendor instructs non-disclosure of material defects, the agent faces an irreconcilable conflict. The REA 2008 requires agents to act honestly and in good faith, while the Fair Trading Act prohibits misleading conduct. Material defects significantly affect property value and purchaser decisions. An agent cannot simultaneously serve their principal's interests and comply with legal obligations when instructed to conceal defects. The only ethical solution is terminating the agency relationship, protecting both the agent's professional standing and preventing potential legal liability for misleading conduct.
Background Knowledge for Agency Practice
Under the Real Estate Agents Act 2008, agents must act honestly, in good faith, and in their client's best interests while maintaining professional standards. However, these duties are subject to legal requirements including the Fair Trading Act's prohibition on misleading conduct. Material defects are significant issues affecting property value or desirability that reasonable purchasers would consider important. When principal instructions conflict with legal obligations, agents cannot compromise their professional duties. The agency relationship is based on mutual agreement and can be terminated when irreconcilable conflicts arise.
Memory Technique
STOP: 'Shady Tasks Oppose Professionalism.' When a principal asks you to do something that conflicts with your professional or legal obligations, you must STOP the agency relationship rather than compromise your integrity or break the law.
When you see questions about conflicting instructions from principals, remember STOP. If the instruction would require unprofessional or illegal conduct, the answer involves stopping (terminating) the agency relationship rather than following bad instructions or acting against the principal.
Exam Tip for Agency Practice
Look for scenarios where principals instruct agents to conceal material information or act unprofessionally. The correct answer typically involves terminating the agency rather than following bad instructions or breaching fiduciary duties.
Real World Application in Agency Practice
A vendor discovers significant structural damage during a building inspection but instructs their agent not to mention it to potential buyers, hoping to achieve a higher sale price. The agent knows this defect would materially affect the property's value and any reasonable purchaser's decision. Rather than risk professional discipline and legal liability by concealing the defect, or breach their fiduciary duty by disclosing against instructions, the agent professionally terminates the agency agreement and advises the vendor to seek representation from another agent willing to ensure proper disclosure.
Common Mistakes to Avoid on Agency Practice Questions
- •Thinking agent loyalty to principal overrides legal obligations
- •Believing disclosure against principal's wishes is acceptable without terminating agency first
- •Assuming seeking legal advice resolves the immediate conflict while continuing to market
Related Topics & Key Terms
Key Terms:
More Agency Practice Questions
Under the Real Estate Agents Act 2008, what is the primary fiduciary duty that a real estate agent owes to their client?
What type of agency agreement allows a real estate agent to receive commission even if the property is sold by another agent?
Which licence category is required for a person to sign agency agreements on behalf of a real estate agency?
When must a real estate licensee disclose any personal interest in a property transaction?
Sarah, a licensed salesperson, discovers that a property she is marketing has a significant building defect that the vendor has not disclosed. What should she do?
- → Under a sole agency agreement, in which circumstance would the agent NOT be entitled to commission?
- → 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?
- → A branch manager discovers that one of their salespersons has been providing incomplete information to potential purchasers about a property's title restrictions. What is the branch manager's primary responsibility?
- → An agent has an exclusive agency agreement that expires in two days, but the vendor wants to extend it for another month with a different agent. The original agent claims they introduced a purchaser who is still negotiating. What determines the original agent's entitlement to commission?
- → Under the Real Estate Agents Act 2008, what is the primary duty that a real estate agent owes to their client?
- → Which licence category allows a person to carry out real estate agency work on behalf of a licensed agent?
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- → When must a real estate agent disclose that they have a personal interest in a property transaction?
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