This is one case worth watching. If these buyers prevail, it could have implications for the entire industry: [Thanks Trisha!]
Anyone who bought a home near the peak of the once-sizzling real estate market no doubt has found it painful to watch prices tumble with no end in sight. But in the case of one North County couple, it’s not the volatile market they blame but their real estate agent, who they say duped them into overpaying.
And they’re going to court to prove it.
Tomorrow, Vernon and Marty Ummel, who purchased a $1.2 million home in Carlsbad three years ago, will try to convince a jury that their real estate agent defrauded them when he failed to inform them that similar houses on the same block were selling for more than $100,000 less than what the Ummels had paid.
Jury selection is expected to begin tomorrow morning in the Vista courtroom of Superior Court Judge Lisa Guy-Schall.
Although legal experts say the case is intriguing, most doubt it will spawn a raft of lawsuits in which disgruntled buyers go after real estate agents alleging they were led astray.
Buyers pay a lot on the assumption that an expert will make sure they pay the best possible price for a property. On the other hand, the final decision lies with the buyer. The final resolution of the question whether a real estate agent should be responsible when a buyer overpays could be a resounding, "It depends."
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I doubt that this case will go anywhere. There are way too many variables that come into play when making value comparisons. Some of the other homes in the area could have been in poor condition on the inside, or suffered from major water, bug, plumbing or electrical problems. Some could have been sold by “motivated sellers” going through a divorce or job loss/transfer. of by an estate after the owner passes on. I think the old saying “let the buyer beware” will be all that will come of this.
Surprised? I am not. We live in a society where people refuse to take responsibility for their actions… and absolutely MUST point the finger at someone else. *sigh* Another frivolous lawsuit clogging up our judicial system…
Beowulf-
I think the most likely effect of this case is to further erode the confidence people place in agents. Yes it is the responsibility of buyers to make an informed decision, but I suspect more folks are now going to ask, “What am I paying for? If I am not getting ‘expert advice’ I can count on, why use an agent?”
I continue to believe that an honest, market-savy agent is worth their weight in gold. The first agent I ever used was worth every dime, but I can’t say that of all of the ones I’ve used, and most people don’t buy RE often enough to know who the good guys are.
The NAR has often stated that one of their great features is “A low barrier to entry.” That’s a philosophy that they need to reconsider.
Hey, maybe I’ll sue the used car salesman who sold me a car for a few thousand more than a similar one on a lot right down the street!
WizeOne-
Attorney’s are perhaps missing a business opportunity. I can see a website- WhoCanISue.com. Perhaps attorneys can review all an individuals business transactions for the past few years and determine in which instances a client could have fared better and initiate lawsuits.
Then again- there are days it seems like the “service” must be out there already!
They will need to prove two things:
1- That the REALTOR was representing them alone and breached her fiduciary duty by not informing them of all the variables.
2- That the value of the house was indeed less than what they paid based upon other listings. I can only assume that they had an appraisal on the house when they bought it.
The real crux of this case goes to the question of what a “buyer’s agent” is required to do.
After the last crash, lots of buyers sued their Realtors. I am an inactive broker. If I were to sell homes today, I would have each buyer sign a statement absolving me from such responsibility. Even though the Realtor may prevail, he will still have substantial legal fees.
Hey, maybe the sellers can start suing real estate agents too if they didn’t get them the same high price as a similar home that sold down the street!
My question is, how did they not look at the appraisal before closing?
That boggles my mind.
From the look of things, some snobby, clueless out-of-town rich folks got fleeced by the townies.
I say good for the townies.
The realtor did have a motivation – since both sides make more money if the buyer pays more, it would be in the realtor’s best interest to hide the lower prices. I can only see there being a case if they can prove their agent actively tried to hide the other listings from them in order to get a higher commission.
Even then, I don’t think they can (or should) win. Realtors are just salesmen, and the job of sales is to get someone to spend as much as you can – not get them the exact product they’re looking for.
From what I recall of this case, the appraisal did come in at the sales price. No surprise there, it always did in California during the boom times.
Due to the downturn in the real estate market that is happening in most parts of the country many buyer’s dreams & expectations are being unravelled. As a result in many cases, there needs to be a fall-guy. For some people, the real estate agent is conveniant. Please don’t get me wrong. There are always some agents that are new and cutting their teeth. Also, there are some agents that are old and in the way. And then there are the dishonest that seem to find a place wherever there is money to be made.
Buyers & sellers alike are better off when they do the research to find the best agent for themselves. If a buyer or seller honestly feels that they can do a better job of it themselves…more power to them.
As a licensed real estate agent in Las Vegas, NV I have seen a lot go up & down in the last 14 years (mainly the last 4 yrs.)When our market accelerated as it did a few years ago I never heard of a buyer suing a real estate agent because the buyer was making too much money in such a short timeframe.
Like most things in life…you get what you pay for.
Twist…I enjoy you’re blog. As far as purchasing in Las Vegas, there are some good deals to be had investing the residential market if (a)you know what to look for and where to look. (b)you have the funds to make it happen. Personally, I have 3 in escrow at this time. Buy low…sell high.
In regards to buying real estate…what’s more important? Location or Timing?
I’m in favor of a Justicew Department inquiry into appraisal firms, fo sho.
I can’t see how we can rush condemn this..be armchair judges without even seeing the evidence the plaintiffs have. I’d like to see the details of the case.
The plaintiffs “blame but their real estate agent, who they say duped them into overpaying.”
Those are pretty strong words. Do any of us have any idea how they plan to back it up?
What if there was an e-mail or such from the realtor that said, “Yes, the price being asked is in line with, or cheaper than, other prices for similar homes in this neighbourhood”??? What if the selfsame realtors office was at the very same time selling very similar homes for $100,000 less in asking price? What if it can proven clearly that the realtor’s statements were completely wrong (either from professional incompetence or greed, but does the reason really matter?)…
If that evidence exists, why not sue the pants off the realtor? Go for it!
However, if it is just somebody that can’t accept responsibility for buying at the top of the market, that is something completely different.
The evidence will speak volumes, no?
MikeC-
I agree- this one is a huge “It depends”. An agent could have a favorite appraiser and said, “Here’s where the number needs to be,”- there are any of a number of mitigating circumstances.
I purchased a home in 1994 in Chandler, and recently wondered how well I did on that one. I had lived out of AZ for about 15 years, and was in town for a couple of days before making an offer- so I wasn’t real savy about the market.
When I went back and did some research, I came to the conclusion that I could have done a lot better on the price had I asked the agent to pull the neighborhood comps for me. I also think I’d have done better had I had a clue about market conditions at the time. I’d looked at a bunch of properties though, and at the time this seemed like the best deal of all the homes I looked at.
I know now that I could have done better- and I blame myself. No one duped me- I didn’t ask the hard questions. On the other hand, the agent didn’t show me a phony appraisal, assure me that this was the best possible deal, make unrealistic promises, etc.
It will be interesting to see the details, and how the judge views the situation.
If I was the agent getting sued, I’d want a judge and NOT a jury to issue the verdict. A jury could have disgruntled FBs on it. The judge may be an FB, but I’d bet on him/her being less swayed by resentment.
If the FBs win this case, it’s gonna open a HUGE can of worms. As if the fallout from this housing bubble won’t be bad enough without lots more lawsuits.
My guess is nothing will get resolved. Realators are supposed to be the buyers agents looking out for the interests of the buyer not their pwn percentage of the cut. A good real estate agent is worth their weight in gold unfortunately there are a lot of agents out there who are only out for themselves and have missed the whole point of “representing” someone. Remax is a pretty big organization and the last thing they want is for the message to get out that RE agents are only out for themselves…They will settle for an undisclosed amount and no admittance of mis-deeds bla bla bla
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hlowe
Daddymunster-
Can you really separate location and timing? Right place, wrong time can be a formula for disaster, but so can right time, wrong place.
I do believe that it’s possible to find good investments- but it takes a savy investor in this market. This is no market for amateurs though.
I seam to be missing something here.
When I took real estate courses,
I thought all agents are paid by the real estate seller.
The buyer does not pay the real estate agent,
unless the buyer makes special arrangements to pay the real estate agent.
buyers are incorrectly thinking that any real estate agents are working for the buyer’s best interest, when almost all agents are all paid by the real estate seller.
There’s a lot of assuming in this thread. Not to pick on one person, but:
My question is, how did they not look at the appraisal before closing?
How do we know that there wasn’t appraisal fraud that was led by the realtor?
From the look of things, some snobby, clueless out-of-town rich folks got fleeced by the townies.
How do we know that they’re rich? They may make $40k a year and qualified for a 0 down 100% LTV.
My point is that we can assume all we want, but nobody knows any of the details, so the counter argument is just as valid. I like twist’s answer of “it depends”. Personally, I don’t like their chances unless they happen to have a notarized letter from the realtor stating something that is a blatant lie.
One good thing that should come out of this (the bubble) would be adding regulations to realtors. I don’t see how we regulate financial advice (after the 80′s debacle), but professionals with a “low barrier of entry” can give advice regarding the most debt you’ll ever take on.
almost all agents are all paid by the real estate seller
With all due respect, Doc, this is something I constantly hear but adamantly disagree with. Sure, the seller writes the checks, but only one person puts any money into the transaction: the buyer*. The seller, agents, appraisers, inspectors, and brokers all take money out of it.
IMHO, the buyer is the one that pays everybody. To give an example, if a realtor lowers their commission, who stands to benefit? Generally, the buyer via a lower price.
* yes, the bank does put money in as well, but the buyer assumes the debt obligation for it, so it’s like him/her putting money in.
Here’s the deal though.
It’s all well and good to the say buyer has to make the call and take the responsibility. Fair enough. But can anyone adequately explain why then a Realtor (TM) should make so much on a given sale? Since the information the Realtor offers must be confirmed independently by the buyer, since comps are subject to confirmation by the buyer. Since it appears there are numerous cases of Realtor misstating obvious trends to their advantage to the disadvantage of their clients, why is it Realtors get a cut of the sale?
Oh wait, the agent never represents the buyer? The seller pays the agent. So why does a buyer want an agent?
Hey Travel Agents and Music Industry drones! You’re going to have company soon. Another group of people has just invalidated their own existence. They’re called “Realtors”. Now you can all keep each other company in limbo.
Don’t worry. You’ll be blasted off to space with the telephone sanitizers and the rest of the lot. You’ll be happier there.
Oh, and as for howe this case turns out. Remember, the music industry “won” the Napster case. Remember how that ruling saved the music industry.
Right.
Uh, while this case is quite interesting to those of that follow such things in general, this is just another incident on the downward spiral that is being a real estate agent. Luckily, most of these people have other skills they can go back. Fries must be dropped. Slushie cups must be filled. May as well be by someone in a suit with a nice, comfortable four door vehicle.
FWIW there seems to be some confusion as to who the agent represents. State agency laws vary but until you get in writing that the agent will represent your interest alone (as a buyer) then you can assume that the agent is acting in the best interest of a seller.
It is interesting to note though that the NAR Code of Ethics does not require an agent to disclose agency up front. NAR leaves that ruling to the individual state laws. Most state laws do require disclosure but many do not.
I seem to recall that this Realtor also arranged their loan… If that is the case he would have been privy to “appraisal issues or concerns” – if any, at the time of the loan.
Twist…
Can you really separate location and timing? Right place, wrong time can be a formula for disaster, but so can right time, wrong place.
Thank you for your feedback. This is a critical point. This is why I raised the question. The 3 key words in real estate one always hears is…location, location, location.
Think about it. Location is important. Right? How often during real estate cycles does a buyer think about market timing? How important is market timing?
Another question to be raised…How does a buyer or seller determine the right time to buy or sell? Do they just listen to what they see or hear in the media? Do they just follow along w/ what NAR has to say?
What if we as buyers can find the right location at the right time? Perhaps this is what the savy investor is doing. What does the savy investor know that most people don’t know?
Twist
I do believe that it’s possible to find good investments- but it takes a savy investor in this market. This is no market for amateurs though.
Excellent point. I totally agree w/ you.
Daddymunster-
Even if the media and the NAR were right on about a market, [Like that will happen] every RE purchase is different. For example, even in a great neighborhood, the homes that back to a busy highway might be a tougher sell than a home in the center. Even in a tough market, a plant opening or other employment opportunites might make a particular neighborhood more desirable.
Then there is the opportunity that buyers are looking for now- the property that is currently discounted more than the general market will fall. The guys that figure that one out will make a lot of money- the ones that miss could end up being another foreclosure statistic.
I’ve seen those signs by the alcohol industry, “Know your limits, and when you drink, drink responsibly.” Maybe the RE industry should post similar signs, instead of “It’s always a great time to buy or sell real estate.” It’s best to leave this market to the grownups who do their research.
Twist…
It’s best to leave this market to the grownups who do their research.
…& those that understand the market fundamentals. And those who know their limits.
Many times people do research and a very good at gathering data so they can arrive and determe an accurate outcome based on their findings. Other times people gather data very well, but their outcome is flawed because of misunderstood assumptions. For example, NAR stated that during the peak of the market some markets reached a 40% affordabilty rate. Today, they may say we are at a 14% affordabilty rate. Question…At what time is the same property truly more affordable for the consumer? 40% or 14%? NAR has all the data, but the assumption of affordabilty is flawed.
“every RE purchase is different.” I agree…yet the fundamentals are the same.
How is it some honest guys are very successful no matter what market cycle while others are not?
Maybe the RE industry should post similar signs, instead of “It’s always a great time to buy or sell real estate.”
For the astute investor the above goes in one ear & out the other. Hopefully, for the average consumer, they will learn from an Einstein quotation. “Question authority.”
Thanks for your imput.
They hired a BUYER’S agent. And if I did the same and my BUYER’S agent withheld data from me to drive up the sale price, thus the commission, I’d be quite upset.
Since, AFAIK, (and IANAL) there is no legal fiduciary obligation in CA, I don’t think the case stands a chance, but I applaud their efforts.
This helps exposes the slimy, seedy underbelly of real estate agents, where you hire and pay someone, TO BE YOUR ADVOCATE, yet they work in their OWN best interests, not yours.
Even the much-maligned legal profession doesn’t do that. When you hire a lawyer, he’s YOUR lawyer.
I’ve been following this story for a while and my opinion is the agent DOES have a problem here. The reason being is he was the mrotgage guy as well as the selling(and if memory serves the listing agnet) agent, so he is complicit in covering up the value and also steering the appraiser toward comps that would make his deal.
If he were not involved int he financing the case would have little merit.
Bonus points to Ice weasel for a Douglas Adams reference
Twist,
If you are a Buyers agent your responsibility is to get the BEST deal for your Buyer. I personally do NOT allow my agents to be Loan Officers as it creates (in my mind) a conflict of interest. Espcially since being a real estate agent and representing a client takes a lot of training and work.
If you are also directing them to a certain mortgage company instead of offerring various loan sources or if you are a loan agent for the lender used you have liability.
Then the icing on the cake is that lenders have a list of appraisal companies they use. The list is quite long for many companies and quite short for others. I believe a lot of issues we saw in AZ were because of close affliations between lenders/appraisers and agents. My talks with AZDFI and paperwork I’ve seen confirmed that.
The next thing is that agents are generally required to give the lender/appraiser a copy of the Purchase Contract which of course has the price offerred on it. The appraiser takes note of that price and trys to make it work.
Often prices offerred do vary according to location, amenities, views, etc. You must depend on professionalism/knowledge of the agent. You as a Buyer should receive a multitude of statistics regarding pricing etc. of any home you are Buying or Selling anywhere. You should also have an agent who you trust to be forthright with you. You as a Buyer must remember to listen/look and make judgement calls based on what you are provided. If what you are provided is minimal in a large city or subdivision, why is that. You need to question your agent.
Whatever happened to buyer beware? Isn’t it up to the buyer to do at least a small amount of research before making a major purchase? Does everyone have to be spoon fed and hand-held through life?
BrokerSue -
I am curious, is your name Sue, or were you motivated by the thread in choosing a username? Or are you an advocate of suing? Just asking….but not really.
I will be curious to hear the facts in detail and the outcome here.
One or two successful suits based on knowing concealment or other wrongdoing by agents will get the ball rolling in recovering what can be recovered from the Realtors. To the extent these people actively promoted the mania and panic with constant lies like “prices only go up” and “buy now or be priced out forever,” and still output misleading materials every day (have you heard the NAR ads on the radio lately?), I, personally, feel like they’ve really done long term damage to our country with their stupidity and selfishness, and if they started getting sued and losing right and left, I would not shed a tear. Perhaps that’s just me.
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