A client asks their real estate agent to not disclose a known flooding issue to potential buyers. What should the agent do?
Correct Answer
A) Disclose the flooding issue, because it materially affects the property
Under the REA Code, licensees must disclose material facts that could influence a buyer's decision, regardless of client instructions. Known flooding issues are material facts that must be disclosed to ensure fair dealing.
Why This Is the Correct Answer
Rule 10.7 requires a licensee to disclose known defects to customers, and rule 10.8 says the licensee must not continue to act for a client who directs that such information be withheld. Known flooding is a material defect.
Why the Other Options Are Wrong
Option B: Follow the client's instructions, to keep the listing and the relationship
Rule 10.8 forbids continuing to act for a client who directs that a known defect be withheld.
Option C: Disclose it only if a potential buyer asks directly about flooding
Rule 10.7 requires known defects to be disclosed to customers; waiting to be asked is not enough.
Option D: Refer the decision to the branch manager and follow whatever is decided
A branch manager cannot authorise concealment; the licensee's own duty under rule 10.7 still applies.
Deep Analysis of This Professional Conduct Question
This question tests understanding of the fundamental duty of disclosure under New Zealand's Real Estate Agents Act 2008. The scenario presents a conflict between client loyalty and professional obligations, which is a common ethical dilemma in real estate practice. The REA Code of Professional Conduct and Client Care requires agents to act with fairness and honesty toward all parties, not just their clients. Material facts like flooding history significantly impact property value and buyer decisions, making disclosure mandatory regardless of client preferences. This principle protects market integrity and prevents misrepresentation claims. The question highlights that professional duties sometimes override client instructions when those instructions would breach legal or ethical obligations. Understanding this hierarchy of obligations is crucial for maintaining professional standards and avoiding disciplinary action.
Background Knowledge for Professional Conduct
The Real Estate Agents Act 2008 and REA Code of Professional Conduct establish mandatory disclosure requirements for material facts. Material facts are circumstances that would influence a reasonable buyer's decision or affect property value. Examples include flooding history, structural issues, or zoning restrictions. The Code requires fair dealing with all parties, not just clients. Agents must balance client loyalty with professional obligations, with legal duties taking precedence. Breaching disclosure requirements can result in disciplinary action, fines, license suspension, and civil liability for misleading conduct.
Memory Technique
Remember FAIR: Facts must be disclosed, Always be honest, Ignore client pressure to hide material information, Responsibility to all parties (not just clients). Think of a fair marketplace where everyone has equal access to material information.
When facing disclosure dilemmas, apply FAIR to determine if information is material and must be disclosed. If it affects value or buyer decisions, disclosure is required regardless of client preferences.
Exam Tip for Professional Conduct
Look for questions involving material facts and client pressure. Always choose disclosure when information materially affects the property. Professional obligations override client instructions when disclosure is legally required.
Real World Application in Professional Conduct
An agent lists a property where the owner mentions previous flooding but asks the agent not to tell buyers as it was 'just once' and repairs were made. The agent must disclose this flooding history in marketing materials and to potential buyers, as it's material information affecting property value and insurance. Even if the client threatens to change agents, professional obligations require disclosure to maintain market integrity and avoid potential legal consequences.
Common Mistakes to Avoid on Professional Conduct Questions
- •Believing client loyalty always overrides disclosure duties
- •Thinking material facts only need disclosure when directly asked
- •Assuming branch managers can override legal disclosure requirements
Related Topics & Key Terms
Key Terms:
More Professional Conduct Questions
According to the REA Code of Professional Conduct and Client Care, what is the primary duty of a real estate licensee?
A licensee receives confidential information about their client's financial difficulties. When can this information be disclosed to third parties?
During a complaint investigation, what is a licensee's obligation regarding cooperation with the Real Estate Authority?
A licensee discovers that a competing agent has made false statements about a property they have listed. What is the most appropriate course of action?
A licensee is charged with misconduct for serious breaches of the Code. During the disciplinary hearing, they argue that their actions were directed by their branch manager. How will this affect the Tribunal's decision?
- → A licensee keeps working while a complaint against them goes to the Real Estate Agents Disciplinary Tribunal. If misconduct is proved, what can the Tribunal do?
- → A licensee working for Agency A learns confidential information about a client’s financial difficulties. They then move to Agency B and are asked to give market advice on that client’s property to a prospective buyer who is a client of Agency B. How should they handle this situation?
- → A licensee working for Agency A learns confidential information about a client's urgent need to sell due to financial difficulties. The licensee then moves to Agency B and uses this information to approach the former client with a lower offer through a contact. This scenario primarily involves a breach of which professional obligation?
- → An agent receives two written offers on the same property at the same time: one from the agent's personal friend at $50,000 below the asking price, and one from an unknown buyer at the asking price. The agent presents only the friend's offer. Under the Real Estate Agents Act 2008, this most likely amounts to:
- → According to the REA Code of Professional Conduct and Client Care, what is the primary purpose of the Code?
- → In what situation would the Real Estate Agents Disciplinary Tribunal have jurisdiction to hear a complaint against a former licensee?
- → James, a branch manager, becomes aware that one of his salespeople has been providing misleading information to clients about settlement timeframes. Under the REA Code, what is James's primary obligation?
- → Under section 121 of the Real Estate Agents Act 2008, what must appear on every advertisement an agent publishes?
- → When can a licensee disclose confidential client information to a third party?
- → A real estate agent discovers that a property they are marketing has a building consent issue that the vendor is unaware of. What is the agent's obligation under the REA Code?
People Also Study
Property Law & Legislation
56 questions
Agency Practice
89 questions
Sale & Purchase Process
63 questions
Property Management
85 questions
Related Study Resources
Previous Question
A buyer's agent learns that their client is planning to purchase a property for significantly below market value from an elderly vendor who may not understand the true value. What should the agent do?
Next Question
A client complains that their real estate agent failed to disclose a known defect in the property. Who has the authority to investigate this complaint under the Real Estate Agents Act 2008?