What must a licensee do when they become aware of a material defect in a property they are marketing?
Correct Answer
C) Disclose the known defect to all prospective buyers without delay
Under the Real Estate Agents Act 2008, licensees have a duty to disclose material defects to all prospective buyers immediately upon becoming aware of them. This is part of their professional obligations and consumer protection duties.
Why This Is the Correct Answer
Rule 10.7 says a licensee is not required to discover hidden defects but must disclose known defects to customers, and Rule 6.4 forbids withholding information that should in fairness be provided. Once the licensee knows of a material defect, prospective buyers must be told.
Why the Other Options Are Wrong
Option A: Wait for prospective buyers to discover the defect on their own
Rule 10.7 requires a licensee to disclose known defects, not to leave buyers to find them.
Option B: Disclose it only if a buyer asks directly about that part of the house
Known defects must be disclosed whether or not a buyer asks (Rule 10.7).
Option D: Discuss it only with the vendor client and leave any disclosure to them
Talking to the vendor is sensible, but the licensee's own duty to disclose known defects to customers remains (Rule 10.7); it cannot be left to the vendor.
Deep Analysis of This Agency Practice Question
This question tests understanding of a licensee's fundamental duty of disclosure under New Zealand real estate law. Material defects are significant issues that could affect a buyer's decision or the property's value. The Real Estate Agents Act 2008 establishes clear professional obligations requiring immediate disclosure to protect consumers and maintain market integrity. This principle reflects the fiduciary duty licensees owe to the public, not just their clients. The requirement for immediate disclosure prevents selective information sharing that could create unfair advantages or disadvantages among buyers. This obligation exists regardless of whether disclosure might harm the vendor's interests, as consumer protection takes precedence. The law recognizes that informed decision-making is essential for fair property transactions, and licensees serve as gatekeepers of crucial information that buyers cannot reasonably discover themselves during typical property inspections.
Background Knowledge for Agency Practice
The duty comes from the Professional Conduct and Client Care Rules 2012. Rule 5.1 requires skill, care and diligence, Rule 6.4 forbids misleading customers or withholding information, and Rule 10.7 requires known defects to be disclosed to customers. Section 135 of the Act is unrelated: it deals with the valuation a licensee must give a client before buying the client's property.
Memory Technique
If the licensee knows of a defect, every prospective buyer is told: not only those who ask, and not only the vendor.
When a question says the licensee knows of a defect, apply 'know it, tell it': disclosure to buyers is prompt and does not depend on questions or the vendor's permission.
Exam Tip for Agency Practice
A known defect is disclosed to every prospective buyer; telling the vendor is part of the process, not a substitute.
Real World Application in Agency Practice
A licensee notices significant foundation cracking during a visit. She tells the vendor that it must be disclosed, updates the property information, and tells every buyer who has shown interest. If the vendor had directed her to keep it quiet, Rule 10.8 would have required her to stop acting.
Common Mistakes to Avoid on Agency Practice Questions
- •Thinking client loyalty overrides disclosure duties
- •Believing disclosure is only required when directly asked
- •Assuming vendor consent is needed before disclosure
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?
- → A licensed real estate agent operates as a sole trader and employs two salespersons. One salesperson engages in misleading conduct during a property sale. Who bears primary legal responsibility for this conduct under the Real Estate Agents Act 2008?
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