Sarah, a licensed salesperson, discovers that a property she is marketing has a leaky roof that the vendor hasn't disclosed. What should she do?
Correct Answer
B) Advise the vendor to disclose, and stop acting if the vendor refuses
The licensee must advise their client to make proper disclosure of material facts and cannot knowingly assist in misleading potential purchasers. If the vendor refuses to disclose, the licensee should refuse to continue acting as this would breach their professional obligations.
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. So Sarah advises the vendor that the leak must be disclosed and stops acting if the vendor refuses.
Why the Other Options Are Wrong
Option A: Tell buyers about the leak but keep marketing even if the vendor objects
Rule 10.8 bars continuing to act for a client who directs that a known defect be withheld, so marketing on over the vendor's objection is not allowed.
Option C: Keep marketing, as disclosing defects is solely the vendor's responsibility
Rule 10.7 makes the licensee responsible for disclosing known defects to customers too.
Option D: Disclose the leak only if a buyer asks specifically about the roof
Known defects must be disclosed without waiting to be asked (Rule 10.7).
Deep Analysis of This Agency Practice Question
This question tests understanding of a licensee's professional obligations when discovering undisclosed material defects. Under the Real Estate Agents Act 2008, licensees have duties to both clients and customers that create ethical tensions. The scenario involves a conflict between loyalty to the vendor-client and honesty to potential purchasers. The key principle is that licensees cannot knowingly participate in misleading conduct, even when acting for a client. This reflects the Act's emphasis on consumer protection and maintaining industry integrity. The question highlights that professional obligations sometimes require difficult conversations with clients, including potentially terminating the agency relationship. This connects to broader concepts of fiduciary duty, professional standards, and the balance between client loyalty and public interest that underpins real estate regulation.
Background Knowledge for Agency Practice
Under the Real Estate Agents Act 2008, licensees owe duties to both clients and customers. Key obligations include avoiding misleading or deceptive conduct, acting with due care and diligence, and maintaining professional standards. Material facts that could influence a purchaser's decision must be disclosed. The Act empowers the Real Estate Authority to investigate unsatisfactory conduct. Agency law creates fiduciary duties to clients, but these don't override statutory professional obligations. Licensees must balance client loyalty with broader professional responsibilities to the public and industry integrity.
Memory Technique
ADVISE: Always Discuss Vendor's Immediate Statutory Expectations. When discovering undisclosed defects, always discuss with the vendor first about their disclosure obligations, then decide whether to continue based on their response.
When you see questions about undisclosed defects or material facts, remember ADVISE - the licensee's first step is always to discuss the issue with their client (vendor) and advise them of their obligations before taking any other action.
Exam Tip for Agency Practice
Rules 10.7 and 10.8 work together: disclose known defects, and stop acting for a client who insists they be hidden.
Real World Application in Agency Practice
A salesperson marketing a 1960s home discovers water damage in the basement during a pre-auction inspection that the vendor hasn't mentioned. Following professional obligations, the salesperson immediately contacts the vendor to discuss the discovery and explains their legal obligation to disclose material defects. When the vendor refuses to add this information to the property file, the salesperson professionally terminates the listing agreement rather than risk misleading potential purchasers, protecting both their license and professional reputation.
Common Mistakes to Avoid on Agency Practice Questions
- •Thinking client loyalty overrides all other professional obligations
- •Believing disclosure is solely the vendor's responsibility with no licensee involvement
- •Assuming you can wait for specific questions before addressing known defects
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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Sarah, a real estate agent, receives two offers on her client's property at the same time. One offer is higher but has more conditions, while the other is lower but unconditional. What is her primary obligation?