Sarah, a licensed salesperson, discovers that a property she is marketing has a leaky roof that the vendor has not disclosed. According to the REA Code, what should Sarah do?
Correct Answer
A) Advise the vendor it must be disclosed and ensure buyers are told
Under the REA Code, licensees must ensure material facts are disclosed and cannot assist in misleading conduct. Sarah must advise the vendor to disclose the defect and ensure it's properly communicated to potential buyers through marketing materials.
Why This Is the Correct Answer
Rule 10.7 requires a licensee to disclose known defects to customers, so Sarah must make sure buyers learn of the leaking roof, for example in the listing and at viewings, and tell the vendor this will happen. If the vendor insists it be hidden, rule 10.8 means she must stop acting.
Why the Other Options Are Wrong
Option B: Ignore the issue, because disclosing defects is the vendor's responsibility
Rule 10.7 places the duty on the licensee to disclose known defects, whatever the vendor does.
Option C: Mention it only if a potential buyer asks a question about the roof
Waiting for a question breaches rule 10.7, which requires known defects to be disclosed to customers.
Option D: Wait until a buyer makes an offer before raising the leak with anyone
Leaving disclosure until an offer arrives means buyers view and negotiate without the facts.
Deep Analysis of This Professional Conduct Question
This question tests understanding of a licensee's fundamental duty under the REA Code regarding material fact disclosure. The scenario presents a classic ethical dilemma where a salesperson discovers undisclosed property defects. The principle at stake is that licensees cannot participate in or facilitate misleading conduct, even passively. This connects to broader concepts of fiduciary duty, consumer protection, and professional integrity. The REA Code requires licensees to act in good faith and deal fairly with all parties. When Sarah discovers the leaky roof, she has actual knowledge of a material fact that could significantly impact a buyer's decision. Her duty extends beyond simply avoiding lies - she must actively ensure proper disclosure occurs. This principle protects consumers from information asymmetry and maintains public trust in the real estate profession. The question emphasizes that professional responsibility cannot be delegated or ignored simply because disclosure is technically the vendor's obligation.
Background Knowledge for Professional Conduct
Client Care Rules 2012: rule 6.4 (must not mislead or withhold information that should by law or in fairness be provided), rule 10.7 (licensee must disclose known defects to customers, and deal with likely hidden defects), rule 10.8 (must not continue to act for a client who directs such information be withheld). The Fair Trading Act 1986 also prohibits misleading conduct about land (ss 9 and 14).
Memory Technique
If you KNOW it, you must TELL it. When a licensee discovers material facts, they cannot keep quiet. Think of yourself as a bridge of information - you must ensure information flows properly from vendor to buyer. The acronym KNOW-TELL reminds you: Knowledge creates an obligation to ensure proper disclosure occurs.
When you see disclosure questions, ask yourself: 'Does the licensee KNOW something material?' If yes, they must ensure it's properly TOLD to potential buyers through appropriate channels. This eliminates passive approaches and emphasizes the proactive duty.
Exam Tip for Professional Conduct
Look for keywords like 'discovers', 'learns', or 'becomes aware' - these signal the licensee has actual knowledge. The correct answer will always require proactive disclosure through proper channels, never passive waiting or ignoring the issue.
Real World Application in Professional Conduct
A salesperson marketing a waterfront property discovers during a site visit that the seawall has significant structural damage not mentioned by the vendor. Following the REA Code, the salesperson must immediately advise the vendor of their disclosure obligation and ensure this material fact appears in all marketing materials, property files, and is communicated to potential buyers. This protects buyers from making uninformed decisions and protects the salesperson from professional misconduct charges.
Common Mistakes to Avoid on Professional Conduct Questions
- •Thinking disclosure is solely the vendor's responsibility
- •Believing passive non-disclosure is acceptable if you don't actively lie
- •Waiting for buyers to ask specific questions before revealing material facts
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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