The real estate watchdog has been stripped of its power to force agents to undergo police vetting checks after a precedent-setting test case by a Wellington agent.

Luke Domb challenged the Real Estate Agents Authority's (REAA) legal right to demand police vetting reports on new or existing agents as part of its licensing process, arguing the checks were unlawful and far more invasive than a criminal history check.

The vets are used by the authority to ensure agents are "fit and proper" to work in the industry and weed out anyone with serious criminal convictions or dishonesty offences.

Domb won the case in a High Court challenge in 2015 but the authority appealed the decision to the Court of Appeal.

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In a just-released decision, the Appeal Court sided with Domb, finding agents only needed to disclose elements of their criminal history such as criminal convictions and charges that had resulted in discharge without conviction or diversion.

Previously, police vetting reports could divulge more far-reaching information, including whether an applicant had been the victim of crime or accused of offending but never charged, plus details of infringement notices, demerit points and domestic violence call outs.

The REAA is now considering the effects of the decision and says it may have implication for other regulators.

The court decision comes just a day after the Herald revealed a North Island agent who is facing serious sex charges has had his licence renewed and is currently selling homes.

The man, who is charged with 11 counts of sexual violation and one of attempted rape, lost his licence last year after information was received from a police vetting report.

His licence cancellation was overturned by the Real Estate Agents Disciplinary Tribunal and the man is now awaiting trial.

The Appeal Court decision says that by requiring applicants to sign a police vetting form, the licensing registrar had "enlarged upon her express powers".

The REAA's lawyer Michael Hodge said agents played a central role in transactions of great importance to people's lives and must be "trustworthy in matters of business".

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"They must also be honest and safe, because they enjoy unfettered access to their clients' homes, and they may often find themselves alone with vendors or prospective clients."

The Appeal Court agreed but found that did not mean agents should be subject to vetting "extending to anything known to the police".

Some 14,000 agents and salespeople nationwide were currently required to renew their licences annually and submit to police vetting.

"It intrudes upon the privacy interests of a great many people.

"It is reasonable to inquire whether the results of police vetting justify the burden it imposes. There is no evidence it does."

Police vetting was not authorised in the Real Estate Agents Act, as it was for teachers in the Education Act, or for children's workers in the Vulnerable Children's Act.

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"We conclude accordingly that the Registrar is without lawful authority to require that applicants sign the police vetting form. She is also without authority to demand that unless applicants do so she will reject their applications for want of information, as she did with Mr Domb in 2015."

The decision found the registrar may lawfully require applicants to authorise the disclosure of their criminal history and make other inquiries to police "she reasonably considers relevant" to whether an agent is a fit and proper person.

REAA chief Kevin Lampen-Smith said the decision limited the scope of criminal history checks on real estate agents.

He was concerned about the potential implications for the REAA and other regulators.

"REAA, like many public and private sector organisations, previously used standard police vetting procedures because we believed it was an important way to protect consumers involved in real estate transactions.

"Buying or selling a property is the biggest financial transaction that most people will ever be involved in and they must be able to rely on the honesty and integrity of the person they allow into their homes and businesses."

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Domb said the decision vindicated his argument and was the culmination in a long-running fight.

He now intended to complain to the Privacy Commissioner.

His lawyer, Alwyn O'Connor, said the outcome "stood as an excellent example of the judiciary considering and assessing the use or misuse of public power.

"Privacy is something all New Zealanders take very seriously.

"Notably there is no public apology offers to the 14,000+ real agents in New Zealand who have been unlawfully compelled to comply with a demand to submit to vetting - something the Authority was not lawfully able to do. As a result, some 14000+ agents have had their right to privacy unduly infringed."