A vendor instructs their agent not to disclose that the property is in a flood-prone area, claiming it's not relevant as no flooding has occurred recently. The agent knows this information would be material to purchasers. What is the agent's correct course of action?
Correct Answer
B) Refuse to continue acting unless the vendor agrees to proper disclosure
The agent must refuse to continue unless proper disclosure is made, as they cannot knowingly participate in misleading potential purchasers about material facts. Professional and legal obligations under the Real Estate Agents Act 2008 require honest dealing and cannot be overridden by client instructions to withhold material information.
Why This Is the Correct Answer
Rule 10.7 requires known defects to be disclosed to customers, and Rule 10.8 says a licensee must not continue to act for a client who directs that such information be withheld. The agent should explain this to the vendor and stop acting unless the vendor agrees to proper disclosure.
Why the Other Options Are Wrong
Option A: Follow the vendor's instruction, because the client controls what is disclosed
A client's instructions bind the licensee only where following them is lawful (Rule 9.1); withholding a known material risk is not.
Option C: Tell buyers about the flood risk anyway and keep marketing for the vendor
Rule 10.8 bars continuing to act for a client who directs that such information be withheld, so carrying on marketing for this vendor is not an option.
Option D: Seek a written indemnity from the vendor and then market without disclosing
An indemnity shifts money, not obligations: the licensee would still be withholding a known defect in breach of Rules 6.4 and 10.7.
Deep Analysis of This Agency Practice Question
The Rules resolve the apparent clash between loyalty and honesty directly. Rule 9.1 makes client instructions binding only where following them is lawful. Rule 10.7 requires known defects to be disclosed to customers, and Rule 10.8 deals with exactly this situation: a client who directs that the information be withheld cannot keep the licensee. So the choice is not between obeying and secretly disclosing; it is between the vendor agreeing to disclosure and the agency ending.
Background Knowledge for Agency Practice
Under the Professional Conduct and Client Care Rules 2012, Rule 6.4 forbids misleading customers or withholding information that should by law or in fairness be provided, Rule 10.7 requires known defects to be disclosed to customers, and Rule 10.8 bars continuing to act for a client who directs that such information be withheld. Flood hazard information also often appears on the council's LIM, so concealment is both wrong and fragile.
Memory Technique
STOP: Stop the agency, Talk to vendor, Obligations come first, Professional integrity Protected. When client instructions conflict with professional duties, you must STOP the relationship rather than compromise your obligations. Remember: you can't STOP being professional, but you can STOP the agency.
When you see questions about conflicting client instructions and professional duties, think STOP. Ask yourself: would following the instruction require me to STOP being professional? If yes, then STOP the agency relationship instead.
Exam Tip for Agency Practice
When a vendor orders a known defect kept quiet, Rule 10.8 applies: the licensee must not continue to act unless the vendor agrees to disclosure.
Real World Application in Agency Practice
An agent lists a property where the vendor reveals the house has had previous methamphetamine contamination that was remediated, but instructs the agent not to disclose this as 'it's been fixed.' The agent knows this is material information affecting value and insurability. Following the vendor's instruction would breach professional obligations, so the agent must refuse to continue marketing the property unless the vendor agrees to proper disclosure in the marketing materials and to potential purchasers.
Common Mistakes to Avoid on Agency Practice Questions
- •Treating the client's instruction as overriding Rule 10.7
- •Thinking the licensee can keep acting while disclosing against the vendor's direction
- •Believing an indemnity from the vendor makes non-disclosure acceptable
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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