Sarah is a licensed salesperson who discovers that a property she is marketing has a significant structural issue that the vendor has not disclosed. What should she do?
Correct Answer
C) Advise the vendor that the defect must be disclosed to prospective purchasers
Licensees have a duty to ensure material facts are disclosed to potential purchasers. While maintaining loyalty to their client, they must advise the vendor of their disclosure obligations and cannot participate in misleading conduct.
Why This Is the Correct Answer
Rule 10.7 requires Sarah to disclose known defects to customers. The right first step is to advise the vendor that the structural defect must be disclosed; only if the vendor directs her to withhold it must she stop acting (Rule 10.8).
Why the Other Options Are Wrong
Option A: Say nothing, because disclosing defects is entirely the vendor's responsibility
Rule 10.7 puts a duty to disclose known defects on the licensee as well; it is not the vendor's alone.
Option B: Mention it only if a prospective purchaser asks her about the structure
Known defects must be disclosed whether or not a purchaser asks (Rule 10.7).
Option D: Withdraw from the agency at once, without first discussing the defect with the vendor
Withdrawal is required only if the vendor directs that the defect be withheld (Rule 10.8); the first step is to advise the vendor.
Deep Analysis of This Agency Practice Question
This question tests understanding of a licensee's duty regarding material fact disclosure under the Real Estate Agents Act 2008. The scenario presents a conflict between client loyalty and professional obligations. Sarah has discovered a structural issue that constitutes a material fact - information that would influence a reasonable purchaser's decision. The Act requires licensees to act with care, diligence, and skill, which includes ensuring clients understand their disclosure obligations. While licensees owe loyalty to their vendor clients, this doesn't extend to participating in misleading conduct or withholding material facts from purchasers. The correct approach balances these duties by advising the vendor of their obligation to disclose, maintaining the agency relationship while ensuring compliance with disclosure requirements. This reflects the principle that professional obligations sometimes require licensees to guide clients toward proper conduct rather than simply following instructions that could breach legal or ethical standards.
Background Knowledge for Agency Practice
Under the Real Estate Agents Act 2008, licensees must act with care, diligence, and skill while serving their clients' best interests. However, this duty doesn't override obligations to ensure material facts are disclosed to potential purchasers. Material facts are information that would influence a reasonable person's decision to purchase or the price they'd pay. Structural defects clearly fall into this category. The Act requires licensees to facilitate informed decision-making and prohibits misleading conduct. Licensees must balance client loyalty with professional obligations, often by educating clients about their legal duties rather than simply following instructions that could breach disclosure requirements.
Memory Technique
Remember GUIDE: Guide clients toward compliance, Understand disclosure duties, Inform about material facts, Duty of care comes first, Educate rather than ignore. When you discover material facts, your role is to GUIDE your client to proper disclosure, not to ignore or hide the information.
When a licensee discovers a defect, think GUIDE: advise the client that it must be disclosed, rather than ignoring it, waiting to be asked, or walking away first.
Exam Tip for Agency Practice
Known defect: advise the vendor it must be disclosed; withdrawal comes only if the vendor insists it be withheld (Rule 10.8).
Real World Application in Agency Practice
A salesperson marketing a 1960s home discovers during a routine visit that there are visible cracks in the foundation that weren't mentioned in the property information. Rather than ignoring this or hoping buyers won't notice, the professional approach is to contact the vendor and explain that structural issues are material facts that must be disclosed to potential purchasers. This protects both the vendor from future legal issues and maintains the salesperson's professional integrity while preserving the agency relationship.
Common Mistakes to Avoid on Agency Practice Questions
- •Thinking client loyalty means hiding negative information
- •Believing disclosure is solely the vendor's responsibility
- •Assuming withdrawal is the only ethical option when conflicts arise
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?
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- → 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?
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