Before a vendor signs an agency agreement, which matters must the licensee explain and set out in writing under the Client Care Rules?
Correct Answer
D) How commission is worked out, when the agreement ends, and marketing costs
Rule 10.6 of the Professional Conduct and Client Care Rules 2012 requires the licensee, before a vendor signs an agency agreement, to explain and set out in writing the conditions for commission and how it is calculated (with an estimated dollar amount), when the agreement ends, how the property will be marketed and any additional marketing expenses, and that the vendor need not agree to those expenses.
Why This Is the Correct Answer
Rule 10.6 requires the licensee, before the vendor signs, to explain and set out in writing how and when commission is payable with an estimated dollar cost, when the agreement ends, how the property will be marketed and any extra marketing expenses, and that the vendor need not agree to those expenses.
Why the Other Options Are Wrong
Option A: The commission rate, the marketing budget, and a guaranteed minimum sale price
No licensee may guarantee a sale price; Rule 10.6 requires a commission estimate and marketing costs, not a guarantee.
Option B: The commission rate, the agreement's length, and the vendor's lowest acceptable price
The vendor's lowest acceptable price is not one of the Rule 10.6 matters; the rule covers commission, the end date, marketing and expenses.
Option C: The commission rate, the agreement's length, and the buyer's finance arrangements
The buyer's finance is unknown at listing and is not a Rule 10.6 matter; the rule is about the vendor's costs and the agreement's term.
Deep Analysis of This Agency Practice Question
Rule 10.6 is about informed consent to cost: the vendor must see, before signing, what commission will cost in dollars, how long they are committed, and what marketing they are being asked to pay for. It does not require guarantees of price or disclosure of the vendor's bottom line. Separate rules require a written appraisal (Rule 10.2) and, for residential property, the Authority's approved guide (s 127).
Background Knowledge for Agency Practice
Section 126 of the Real Estate Agents Act 2008 requires a written agency agreement signed by the client and agent, with a copy given to the client within 48 hours. Section 127 requires the approved residential guide before signing. Section 130 lets a client cancel a sole agency by 5 pm on the first working day after receiving a copy, and section 131 allows cancellation of a long residential sole agency after 90 days.
Memory Technique
Rule 10.6 in three words: Cost (commission and how it is worked out, in dollars), Clock (when the agreement ends), Campaign (how it will be marketed and what extra it costs).
When asked what must be explained before an agency agreement is signed, run through cost, clock and campaign.
Exam Tip for Agency Practice
Rule 10.6 covers commission with a dollar estimate, the end date, marketing and extra expenses; there is no 'cooling-off period' term.
Real World Application in Agency Practice
Before a vendor signs, the licensee gives her a written sheet: commission of 3.5% plus GST on the first $400,000 and 2% thereafter, estimated at a stated dollar figure on the appraised price; the agreement ends in 90 days; the marketing plan and its costs; and a note that she need not agree to the marketing spend.
Common Mistakes to Avoid on Agency Practice Questions
- •Believing agency agreements carry a statutory cooling-off period
- •Thinking the vendor's lowest price must be written into the agreement
- •Forgetting that the commission estimate must be in dollars
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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