Real Estate PrinciplesChapter 2 · 32 practice questions

Chapter 2: RECA Code of Conduct and Ethics

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Overview of the Chapter

This chapter covers the RECA Code of Conduct and Ethics, the foundational regulatory framework governing all real estate licensees in Alberta. The Code, along with related regulations such as the Practice Standards Regulation and Real Estate Act, sets out the professional duties, ethical obligations, and legal responsibilities that every licensee must uphold. The material focuses on core principles—honesty, integrity, competence, loyalty, confidentiality, and disclosure—as well as specific rules regarding trust accounts, conflicts of interest, advertising, and the handling of defects and errors. Mastering these concepts is essential for exam preparation and for safe, ethical practice in Alberta real estate.

Trust Account and Deposit Handling Trust Account and Deposit Handling Strict rules — RECA Code of Conduct and Ethics (Alberta/Canada) ⛔ ABSOLUTE PROHIBITION Personal use of funds = SERIOUS OFFENSE ❌ Even with intention to repay ❌ Even if repayment is quick and complete ❌ No exceptions — Article 28 💰 COMMISSION — RELEASE Required release conditions: 1 All conditions met (inspection, financing, etc.) 2 Release authorized according to the trust agreement ⚠ Verbal consent = INSUFFICIENT ⚠ Mere closing = NOT ENOUGH ⚠ CONSENT — LEGAL REQUIREMENTS ✗ Verbal consent Insufficient to deduct the commission ≠ ✓ Written consent required In accordance with the trust agreement ✓ KEY TAKEAWAYS ✓ Trust funds are NEVER personal funds ✓ Commission requires: conditions met + authorized release + written consent ✓ Any violation = disciplinary action and possible loss of license RECA — Code of Conduct and Ethics | Trust Funds Regulation, art. 28 | Real Estate Brokerage Training

Key Concepts Explained

RECA Code of Conduct and Ethics — Module AB-PRIN CORE PRINCIPLES Code of Conduct • Honesty & integrity • Professional competence • Client confidentiality • Avoid conflicts of interest DUTIES TO CLIENTS Fiduciary Responsibilities • Due diligence & care • Full disclosure • Obey lawful instructions • Account for funds TRANSACTION DUTIES Dealings & Disclosures • Written contracts • Material latent defects • Advertising compliance • Record keeping RECA ENFORCEMENT FRAMEWORK Real Estate Council of Alberta — Regulatory Oversight Complaints • Consumer complaints • Investigation process • Hearing procedures Sanctions • Fines • License suspension • License revocation Education • Mandatory training • Ethics remediation • Practice improvement COMPLAINT PROCESS FLOW 1. Intake 2. Review 3. Investigation 4. Resolution 5. Appeal Core Principles Client Duties Transaction Duties Enforcement RECA Code of Conduct and Ethics — Regulatory Compliance

General Standard of Conduct

Every licensee must act with honesty, integrity, and competence in all real estate activities (Q18). These three pillars underpin every duty described in the Code. They are not optional; they apply in every interaction, whether with clients, customers, other licensees, or the public.

  • Honesty means providing truthful information and not misleading any party. Even an unrepresented buyer asking a question must receive an accurate answer (Q5).
  • Integrity requires licensees to refuse instructions that are illegal or unethical, and to correct errors promptly when discovered. Attempting to hide a mistake that could harm a client violates this duty (Q4).
  • Competence includes exercising reasonable diligence to verify information before passing it on. Licensees are not required to guarantee facts, but they must make reasonable efforts to ensure accuracy (Q3).

Duty to Report Unethical or Illegal Conduct

Duty to Report to RECA Duty to Report to RECA 1. A licensee observes behavior that is illegal or contrary to ethics 2. Personal relationship with the offender? (friend, colleague, relative) Irrelevant ✓ Personal relationship does NOT exempt the obligation 3. Report to RECA Sections 29-33 of the Code of Conduct and Ethics Failing to report = Breach of professional duty Examples: • Fraud or false representation • Misappropriation of trust funds • Misleading advertising • Undisclosed conflict of interest • Inducing violation of the Code • Illegal practice of the profession • False promises to a client Procedure: 1. Document the facts (dates, locations) 2. Gather evidence (documents, emails) 3. Report to RECA in writing, official form 4. Keep a copy 5. Cooperate with the investigation Key reminder: The duty to report takes precedence over any personal consideration — protect the public and the profession.

Sections 29–33 of the Code impose a mandatory duty to report any illegal or unethical behavior by another licensee to the Real Estate Council of Alberta (RECA). This is a personal professional obligation; failure to report is itself a breach of the Code (Q1).

  • The duty arises regardless of personal relationships or friendships.
  • The report must be made to RECA, not merely to a supervisor or colleague.
  • The obligation applies even if the reporting licensee is not directly involved in the situation.

Disclosure of Material Latent Defects

Under Section 13 of the Practice Standards Regulation, a licensee who has actual knowledge of a latent material defect must disclose it to any potential purchaser, including an unrepresented buyer (Q2). A latent defect is a problem that is hidden and not discoverable by a reasonable inspection.

Disclosure of Material Latent Defects Disclosure of Material Latent Defects Art. 13 Regulation on Practice Standards Legal obligation of the license holder — Quebec/Canada DEFINITION Hidden defect affecting the value or use of the real property. ✓ Not discoverable by a reasonable inspection by the buyer ✓ Persists even after repair APPLICATION CONDITIONS 1 Actual knowledge of the defect by the license holder 2 Latent nature of the defect (not apparent) 3 Significant impact on value or use BENEFICIARIES OF DISCLOSURE ✓ Represented potential buyer ✓ Unrepresented potential buyer ✓ Any prospective acquirer MANDATORY OBLIGATION — NO EXCEPTION The license holder must disclose material latent defects of which they have actual knowledge. This obligation applies: ✓ Even if the buyer is not represented by a license holder ✓ Even against the explicit will of the seller SCOPE AND LIMITS OF THE OBLIGATION COVERED BY THE OBLIGATION • Hidden defects affecting value or use • Structural problems, leaks, contamination • Facts noted during prior inspections NOT COVERED BY THE OBLIGATION • Apparent defects or visible during a visit • Defects without impact on value or use • Information not known to the license holder Source: RECA Code of Conduct and Ethics — Regulation on Practice Standards, article 13 (disclosure of material latent defects)
  • Material defect means one that could affect a buyer’s decision to purchase or the price offered.
  • Actual knowledge is required—speculation or suspicion is not enough, but confirmed information must be disclosed.
  • This duty overrides a seller’s instruction to remain silent. If a seller asks a licensee not to disclose a known latent defect (e.g., a repaired water damage whose traces are invisible), the licensee must refuse and inform the seller of the legal obligation to disclose (Q16).

Confidentiality

The duty of confidentiality is one of the most enduring obligations in real estate agency. It survives the end of the agency relationship indefinitely (Q6). A licensee may never disclose confidential information about a former client unless:

  1. The law requires it (e.g., a court order); or
  2. The client gives informed written consent (Q11).
Scope of the Duty of Confidentiality SCOPE OF THE DUTY OF CONFIDENTIALITY ⏳ INDEFINITE SURVIVAL AFTER THE END OF THE MANDATE The duty of confidentiality applies to information obtained in the context of the agency relationship, without time limit. LIMITED EXCEPTIONS — ONLY TWO CASES 1. LEGAL OBLIGATION E.g. court order, express legal requirement 2. WRITTEN CONSENT Informed and written consent of the client, free and informed OR 🏢 CHANGE OF BROKERAGE FIRM MAIN PROHIBITION The licensee MAY NOT take copies of client files or databases REQUIRED CONDITION Written authorization from the former brokerage and subject to applicable law ⚠ IMPORTANT NOTE Informing clients is not sufficient. Written authorization from the brokerage is mandatory. Source: RECA Code of Conduct and Ethics — Chapter 2, Section 4 (Confidentiality and Confidential Information)

Confidentiality applies to all information obtained during the agency, including client databases. When a licensee changes brokerages, they cannot take a copy of confidential client records or databases without the written authorization of the former brokerage (Q12). Simply informing clients of the move does not justify taking the records.

Integrity and Error Correction

When a licensee makes an error that could harm a client—such as a wrong closing date on a promise to purchase—the licensee must immediately inform the client (Q4). The ethical duty is to be transparent and take corrective action. Attempting to hide the error or unilaterally fix it without disclosure violates integrity and competence.

Similarly, a licensee must not follow a client’s instructions that are illegal or contrary to the Code (Q16). The duty of loyalty is not blind obedience; it is always subject to the law and professional ethics.

Trust Account and Deposit Handling

Trust accounts are strictly regulated. The brokerage holds deposits in trust until the conditions for release are fulfilled. The brokerage cannot deduct its commission from the trust deposit until all parties have signed release documents or the right to release has been established according to the trust agreement (Q7). Verbal consent is insufficient, and the closing of a sale does not automatically authorize the use of trust funds.

More importantly, Section 28 of the regulations absolutely prohibits a licensee from using trust funds for any personal purpose, even temporarily. Intent to repay or a short duration (e.g., 48 hours) does not change the prohibition. Such misuse is a serious offense (Q10).

Advertising and Truthful Claims

Advertising and Truthful Claims Advertising and Truthful Claims — Regulatory Requirements RECA Code of Conduct and Ethics — Chapter 2 | Real Estate Brokerage Quebec/Canada CENTRAL PRINCIPLE All advertising must be truthful, accurate, and based on verifiable facts ✓ Accurate information • Precise and verifiable facts • No misleading data • Diligent verification of information transmitted • Accuracy without absolute guarantee ✗ Exaggerations prohibited • No advertising exaggeration • No half-truths • Prohibition on misleading the public • No deliberate ambiguity • No misleading statements ⚖ Comparative claims • Supported by evidence • Verifiable objective data • Fair comparisons • Documented sources • No unfounded allegations REGULATORY REMINDER • Advertising is part of the professional activities subject to the RECA Code of Conduct and Ethics. • Every licence holder (agent, broker, designated broker) is responsible for their advertising. • False or misleading advertising constitutes a professional offence subject to sanctions. • Professional integrity requires that every assertion be factual and verifiable. Source: RECA Code of Conduct and Ethics — Chapter 2 | Real Estate Brokerage Training Quebec/Canada

All advertising must be truthful, accurate, and based on verifiable facts (Q8). Exaggerations, half-truths, or claims that cannot be substantiated (e.g., “best in the city,” “lowest fees guaranteed,” or statements that are only partially true) violate the Code. Only claims that are real and demonstrable—such as a specific, fact-based qualification—comply.

Conflicts of Interest and Material Relationships

Any personal interest or relationship with a party (e.g., the licensee’s son making an offer on a listed property) is a material fact that must be disclosed in writing to the client (Q9). This falls under Article 7 (or the relevant provision) on conflicts of interest and material information. The seller must be informed so they can make an informed decision about representation.

The Code requires that all conflicts of interest must be disclosed in writing (Q19). This includes financial, personal, or any other interest that could affect the licensee’s duty of loyalty or objectivity.

Dual Agency (Limited Dual Agent)

Limited Dual Agency Consent Process Limited Dual Agency Consent Process Three mandatory steps — RECA Code of Conduct and Ethics 1 Written Disclosure ✓ Document given to both parties ✓ Nature of dual agency explained ✓ Dual agent's role specified Art. 7 Rules of Practice Regulations 2 Explanation of Implications ✓ Confidentiality limits ✓ Representation limits ✓ No secrets between parties Information clearly communicated to both parties i 3 Written and Informed Consent ✓ Seller's consent ✓ Buyer's consent ✓ Signature of both parties Mandatory before acting as a dual agent ⚠ Without these three steps: The licensee cannot represent both parties — acting otherwise constitutes a violation of the RECA Code of Conduct and Ethics. Confidentiality — Information ✓ Applies to information obtained within the agency relationship ✓ Continues indefinitely after the mandate ✓ Exception: law or written consent Dual agency = conflict of interest ✓ Specific form of conflict of interest ✓ Full written disclosure required ✓ Client's consent to proceed ✓ Limited dual agent: neither party

When a licensee acts for both the seller and buyer in the same transaction, they are acting as a limited dual agent. Before providing any services in this capacity, the licensee must:

  1. Disclose the dual mandate in writing to both parties.
  2. Explain the implications (the limits on confidentiality and advocacy).
  3. Obtain written, informed consent from each party (Q14).

Without this mandatory step, the licensee cannot proceed. The duty of loyalty is restricted in dual agency, but disclosure and consent are absolute prerequisites.

Duty of Loyalty

The duty of loyalty means the licensee must always act in the client’s best interest, but within the boundaries of law and ethics (Q20). It does not mean blindly following instructions that are illegal, unethical, or harmful to third parties. The licensee must balance loyalty with other duties such as honesty, integrity, and compliance with the Code.

Acting Without Authorization

A licensee cannot bind a client without a clear mandate or instructions. For example, making an offer on behalf of a client at an auction without the client’s specific authorization—even if done with good intentions—violates the duty of obedience and loyalty (Q13). Offers and other binding actions must be based on explicit client instructions.

Written Offers Requirement

In Alberta, a real estate offer must be in writing to be valid. Therefore, a licensee cannot present a verbal offer to a seller. The licensee must require the offer to be in writing before submitting it (Q17). This ensures clarity, enforceability, and compliance with RECA Regulation 41(2).

Applicability of the Code of Conduct

The RECA Code of Conduct and Ethics applies to every licensee—agents, brokers, and designated brokers—authorized by RECA, without exception (Q15). It covers all real estate activities, whether conducted within a brokerage relationship or not.

Important Regulations, Procedures, and Code Provisions

Several key sections and regulations are critical to memorize:

  • Sections 29–33 (RECA Code): Duty to report unethical/illegal conduct.
  • Section 13 (Practice Standards Regulation): Disclosure of latent material defects to all potential purchasers.
  • Section 28 (Regulations): Prohibition on personal use of trust funds.
  • Section 7 (Practice Standards Regulation): Dual agency disclosure and written consent.
  • Article 7 (Code): Disclosure of material interests and conflicts of interest in writing.
  • Regulation 41(2): Requirement for written offers.

Procedures to remember:

  • When an error is discovered that may harm a client, the licensee must inform the client immediately.
  • When a licensee changes brokerages, confidential client records must not be taken without written authorization from the former brokerage.
  • When a client instructs a licensee to withhold information about a known latent defect, the licensee must refuse and explain the legal duty to disclose.
  • Trust funds cannot be released to the brokerage until all conditions are met and the release is authorized per the trust agreement.

Common Relationships Between Concepts

  • Confidentiality vs. Disclosure: The duty of confidentiality (to the client) is overridden only by legal compulsion or client consent. However, the duty to disclose latent defects applies even to unrepresented buyers and cannot be avoided by following a client’s instructions.
  • Loyalty vs. Integrity: Loyalty requires acting in the client’s best interest, but integrity may require refusing a client’s unethical request. The licensee must prioritize legal and ethical obligations over blind loyalty.
  • Dual Agency vs. Conflict of Interest: Dual agency is a specific type of conflict that requires a special disclosure and consent process. Other conflicts (e.g., family relationship) also require written disclosure but do not necessarily create dual agency.
  • Diligence vs. Guarantee: Reasonable diligence means verifying information to a reasonable standard—it does not require a guarantee of absolute accuracy, but it does require an honest effort to avoid misrepresenting facts.
  • Trust Funds vs. Personal Funds: Trust funds are never the licensee’s own money, even temporarily. The strict prohibition on personal use is absolute, regardless of intent or repayment.
  • Reporting Duty vs. Personal Relationship: The duty to report another licensee’s misconduct is not excused by friendship. Failure to report is itself a breach of the Code.

By understanding these key concepts, regulatory provisions, and the relationships between them, the licensee is prepared to act ethically, avoid common violations, and meet the standards expected by RECA and the public.

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Reinforce RECA Code of Conduct and Ethics with 32 licensing exam–style practice questions, matched to your weak areas.

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