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?
Correct Answer
A) Tell the vendor immediately and advise them to get professional advice
The REA Code requires agents to act in their client's best interests and maintain professional competence. Discovering material issues requires immediate disclosure to the client so they can make informed decisions and seek appropriate professional advice.
Why This Is the Correct Answer
Rule 9.3 requires the licensee to keep the client informed of matters relevant to their interests, and rule 10.7 will require the issue to be disclosed to buyers. The first step is to tell the vendor straight away and recommend advice from a lawyer or building professional.
Why the Other Options Are Wrong
Option B: Keep marketing, since the vendor does not know about the issue
The vendor's ignorance does not help, because the licensee now knows, and rule 10.7 requires known defects to be disclosed.
Option C: Disclose it only if a buyer asks a specific question about consents
Waiting to be asked falls short of rule 10.7 and of the duty to keep the client informed under rule 9.3.
Option D: Wait until a sale is agreed before raising the matter with anyone
Raising it after a sale is agreed exposes the vendor to claims and breaches the duty to inform the client promptly.
Deep Analysis of This Professional Conduct Question
This question tests understanding of the fiduciary duty and disclosure obligations under the REA Code of Professional Conduct and Client Care. The scenario involves an agent discovering material information that affects the property's value or marketability - a building consent issue. The REA Code requires agents to act with utmost good faith toward their clients and maintain professional competence. When an agent discovers material defects or issues, they have an immediate obligation to inform their client, regardless of whether the client was previously aware. This principle protects both the vendor (from potential liability) and maintains the integrity of the real estate transaction process. The obligation extends beyond mere disclosure to advising the client to seek appropriate professional advice, ensuring they can make fully informed decisions about how to proceed with the marketing and sale of their property.
Background Knowledge for Professional Conduct
Client Care Rules 2012: rule 9.3 (keep the client well informed in a timely manner), rule 9.7 (recommend legal advice and make people aware they may need technical advice), rule 10.7 (disclose known defects to customers). Unconsented building work can affect insurance, lending and the vendor's warranties in the sale and purchase agreement, which is why early advice matters.
Memory Technique
FIND: First discover, Inform immediately, Navigate to professional advice, Duty fulfilled. Like finding a leak in your roof - you wouldn't wait to tell the homeowner, you'd inform them immediately so they can get expert help before damage worsens.
When you see questions about discovering material defects or issues, remember FIND. The agent must act immediately upon discovery, inform the client right away, and guide them to seek professional advice to fulfill their duty under the REA Code.
Exam Tip for Professional Conduct
Look for keywords like 'discovers', 'material issue', or 'defect'. The REA Code always requires immediate disclosure to clients with advice to seek professional help. Never choose options involving delay, concealment, or reactive disclosure only.
Real World Application in Professional Conduct
An agent marketing a 1960s home discovers during a property visit that renovations were done without proper building consents. The vendor mentions they bought it 'as is' and assumed everything was compliant. The agent must immediately inform the vendor about the consent issues, explain the potential implications for sale and liability, and recommend they engage a building consultant or lawyer. This protects the vendor from unknowingly misrepresenting the property and ensures transparent marketing to potential buyers.
Common Mistakes to Avoid on Professional Conduct Questions
- •Thinking ignorance protects the vendor from disclosure obligations
- •Believing reactive disclosure when asked is sufficient
- •Assuming material issues can wait until sale agreement
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 client asks their real estate agent to not disclose a known flooding issue to potential buyers. What should the agent do?
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A potential purchaser asks a licensee about the vendor's motivation for selling. The vendor has told the licensee confidentially that they are facing financial difficulties. How should the licensee respond?
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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: