What must a real estate agent disclose to a potential purchaser when showing a property?
Correct Answer
A) Known material facts that could influence the purchaser's decision
Agents must disclose all material facts that could influence a purchaser's decision, regardless of whether specifically asked. This includes known defects, legal issues, or other factors that could affect the property's value or desirability.
Why This Is the Correct Answer
Rule 6.4 forbids withholding information that should by law or in fairness be provided to a customer, and Rule 10.7 requires known defects to be disclosed. Where a hidden defect is likely, Rule 10.7 also requires the licensee to get confirmation from the client or tell customers about the risk.
Why the Other Options Are Wrong
Option B: Only information that the purchaser specifically asks the agent about
Disclosure of known defects is not limited to what buyers ask; Rule 10.7 requires them to be disclosed.
Option C: Only the defects that are visible to anyone during an ordinary inspection
Visible defects are the ones buyers can see for themselves; the rules matter most for known defects buyers cannot see.
Option D: Only information the vendor has given written permission to share with buyers
Vendor permission cannot limit the licensee's duty; a licensee must not act for a vendor who directs that known defects be withheld (Rule 10.8).
Deep Analysis of This Agency Practice Question
This question tests understanding of the fundamental disclosure obligations under New Zealand's Real Estate Agents Act 2008. The principle of material fact disclosure is central to consumer protection and maintaining public trust in real estate transactions. Material facts are those that would reasonably influence a purchaser's decision to buy or the price they're willing to pay. This obligation extends beyond mere honesty to proactive disclosure, creating a higher standard of care. The requirement protects purchasers who may not know what questions to ask and ensures agents act in the public interest. This connects to broader fiduciary duties, professional standards under the Real Estate Agents Authority (REAA), and the fundamental principle that real estate agents must prioritize consumer protection over vendor interests when it comes to material information.
Background Knowledge for Agency Practice
Under the Real Estate Agents Act 2008, agents owe duties to both vendors and purchasers, with consumer protection being paramount. Material facts are defined as information that would reasonably influence a purchaser's decision or the price they'd pay. This includes structural defects, legal issues, planning restrictions, flooding history, or neighbourhood factors. The REAA Rules and Code of Conduct specify that disclosure must be proactive, not reactive. Agents cannot rely on purchasers asking the right questions or vendors giving permission. This obligation reflects the professional standard expected of licensed agents and protects consumers who may lack real estate expertise.
Memory Technique
Remember MALL: Material facts must be disclosed to ALL purchasers, regardless of whether they ask or vendors allow it. Just like a shopping mall has everything visible to shoppers, agents must make all material information 'visible' to purchasers.
When you see a disclosure question, think MALL: if it is Material and known, it goes to ALL purchasers, whether or not they ask and whatever the vendor prefers.
Exam Tip for Agency Practice
Material and known means disclosed: not only when asked, not only if visible, and not subject to the vendor's permission.
Real World Application in Agency Practice
An agent knows a property has had previous flooding issues that aren't visible but are documented in council records. Even though the vendor asks the agent not to mention it unless specifically asked, and the purchaser doesn't ask about flooding, the agent must still disclose this material fact. The flooding history could significantly influence the purchaser's decision and the property's insurability, making it a material fact requiring proactive disclosure under the Act.
Common Mistakes to Avoid on Agency Practice Questions
- •Thinking disclosure is only required when asked
- •Believing vendor instructions can override disclosure duties
- •Limiting disclosure to only visible 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?
- → 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?
- → 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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