On April 3, we discussed the story of the Ummels, the unhappy homebuyers that were suing their realtor. The jury has ruled, and they are saying "caveat emptor":
Friday, April 11, 2008 | A jury sided Thursday with Carlsbad real estate broker Mike Little in a closely watched lawsuit that pitted a local couple against the agent that helped them buy a home. The couple, Vern and Marty Ummel, claimed that Little neglected to mention recent sales in their neighborhood, leading them to overpay by about $150,000 for their home in July 2005.
The case attracted national attention as it posed a hot question: What are the responsibilities of a real estate agent? The real estate camp was concerned that if the plaintiffs won Thursday, it would catalyze and focus a growing urge around the country to find someone to blame — and to hold financially responsible — when houses aren’t worth as much as their buyers once paid. Those who sided with the Ummels worried their case would be chalked up to rich people problems, a matter of a measly $150,000 in the scope of a million-dollar tract home near a golf course in North County.
With an enthusiastic and unanimous response, the jury found that Little had executed a reasonable standard of care when he showed his clients, Vern and Marty Ummel, more than 80 homes in a house hunt that began in May 2005, ultimately leaving them to their decision to pay $1.2 million for their house two months later.
Why did the jury side with the agent?
At least in this specific case, the Realtor was found to have exercised sufficient care in helping the Ummels find their house, including helping them negotiate other offers they made on houses before they settled on this one. That made an important part of the case Vern Ummel’s admission on the stand that after looking at so many homes, he had a good sense of value in the neighborhood.
I’d concur that any buyer that has looked at 80 properties and made offers on others ought to have developed a clue about what the local comps were. Chalk up one for the agent this time. A different day however, we might be seeing a different story
Twist, I agree with you and with the jury on this particular case as far as what we know about it.
The interesting questions for future cases might be these: What are the expectations that buyers ought to have about their real estate agents? What is the service being contracted, and what ought it be?
My wife and I have been through a few agents over the past 2 years and we’re very disatisfied. This is what we want:
- Access to homes that we might be interested in buying within a reasonable timeframe, for as many homes and for as long a timeframe as we would like to search.
- Data (versus perspective) as we request it about what houses are and have been selling for. (We’ve landed on an agent nowadays who is providing us with “peak period comps” so we can estimate what a home might have sold for at the market peak and then discount it to what we’re willing to pay now).
- Negotiations with the seller’s agent, within the boundaries we agree upon in advance.
These are three things that many agents seem to find it impossible to provide.
First, agents are no where near as patient as they need to be these days. If I were one I think I might try to establish a brand of integrity and patience so I could hold onto conservative but reliable buyers like me and my wife.
Second, agents provide a great deal of unrequested perspective centered around the notion that “now is the time to buy.” It just makes them sound cheap and deceitful.
Third, agents often negotiate with a motivation to close a deal, which is not always in the best interests of their clients or in line with what their clients tell them (e.g., “this is the most we can afford.”)
It’s obvious that the credo of many agents is “move inventory” versus “serve clients.”
Agents like the notion that their clients’ “falling in love with a home” is the primary goal, and that is not true. We all fall in love with our homes once we live in them; our brains naturally help make that happen for us, as well as our memories of good times there.
DCBeacon…
You raise some interesting points.
If the shoe was on the other foot and both you & your wife were real estate agents…What would you expect from your clients (buyers & sellers) so that you could better serve them?
Excellent and appropriate question, Daddym!
At least three three things com to mind:
- Honesty about the buyer’s overall intentions and specific ability to buy what they are looking at.
- Openness to data about the market and its underlying fundamentals.
- Loyalty to the agent if they are doing their job.
It occurs to me that both parties may be better off if the buyer pays the agent a fee vs. as a part of closing as someone here has pointed out before, as that creates a questionable relationship and motivations.
Also, we are happy wth ourcurent agent, so it is possible!
I’m curious about something…maybe somebody can help me out w/ this.
Why is it that more buyers buy homes during a seller’s market…than in a buyer’s market?
Prices are higher during a seller’s market and there is less inventory to choose from.
Prices are lower during a buyer’s market and there is more inventory to choose from.
Since homes are more affordable now than in a seller’s market…why is it that the number of sales are down? …Interest rates are still very good.
When is the best time for the buyer to purchase a home?
Oh, as far as sellers, I think the second and third requirements above still hold. I also think a willingness to provide access to a clean and organized home that has been “touched up” ought to be an expectation of agents with their selling clients.
DcBeacon…
Hopefully this agent works out for you & your wife. Glad to hear your’e happy w/ your current agent. Sounds like you know what you want. Many people will say “All agents are alike!…yet…many people will say “My agent is worth (his/her) weight in gold!
Why is that?
Honesty…Openess…Loyalty
Great points!
May I add one important element? Communication between the client and the agent. In many cases there needs to be better questions being asked during the buying & selling process and also better listening. This applies to all parties involved whether it be the client or the agent. …This may lead to fewer cases that wind up in court. What do you think?
Thanks in advance for your response!
If I were actively selling today, I would have every buyer sign an addendum stating that I was not responsible for the appreciation/depreciation of the home. Let’s face facts, any person purchasing a home today is going to experience a loss in value. Any person buying a home today is not aware of the economy or real estate market. Why take a chance with such a big purchase? (notice I didn’t say investment?)
“Why is it that more buyers buy homes during a seller’s market…than in a buyer’s market?”
Maybe you’re reversing the cause/effect. I think it’s because it’s the buyers that determine a “buyer’s” vs “seller’s” market. Lots of buyers frantic to buy houses creates the seller’s market. A lack of demand creates a market favorable to buyers.
village…
“Lots of buyers frantic to buy houses creates the seller’s market. A lack of demand creates a market favorable to buyers.”
Why are the buyers “frantic” during a seller’s market? It seems like common sense for a buyer to wait & purchase in a buyer’s market like what we are experiencing now. It would be more affordable for the buyer w/ the prices falling the way they are…right? Interest rates are still good…aren’t they?
stevec…
Interesting point about the addendum. Who’s is responsible for appreciation/depreciation?
“Let’s face facts, any person purchasing a home today is going to experience a loss in value.”
(I just closed escrow on a house 2 weeks ago. In 2005 it sold for 500k. I paid 212K.) Who experienced a loss in value?
“Why take a chance with such a big purchase?”
(Good point! That’s why I waited to buy now. I feel like I saved 288k.)
By the way…this was a foreclosure. The home was in very good condition. To make it move-in condition it required…2 days of my work. 1 day for basic interior cleaning & 1 day for basic landscaping. Nice home & nice location.
(This purchase is not my primary home. Time will tell if it is an investment.)
Your opinion is appreciated.
Daddymunster,
“It seems like common sense for a buyer to wait & purchase in a buyer’s market like what we are experiencing now.”
Well, that’s just it - peoples emotions overtake their common sense. People were thinking “OMG! Prices keep going up and up! I need to buy now before I can’t afford anything. Everyone says prices can’t go down! I’ll make $1,000,000 in 5 years and sell and buy a BIGGER house!”
I see similar problems with the stock market now. All my co-workers are looking at their 401k statements and panicing. They see the big drops and are moving their 401k money out of stocks. Prices are DOWN and they are selling out! They say when things get better they will get back in. Sell low, buy high - how does that make any sense?
village,
“peoples emotions overtake their common sense.”
Could this be what AG termed “irrational exhuberance?”
Now people are thinking “OMG! Prices keep going down and down! I need to wait. Maybe it will become even more affordable. Everybody says now is not the time to buy. Maybe I’ll wait til the market gets better when more people sre buying again.”
Why is it said that the typical buyer makes purchases based on emotional decisions…while it seems like the savy investor makes decisions w/ little or no emotional attachment? How costly are these emotional based decisions? …of homebuyers or of your co-workers?
“Sell low, buy high”…perhaps these are the people the savy investor is looking to find and cut a deal with.
I’m curious about something…maybe somebody can help me out w/ this. Why is it that more buyers buy homes during a seller’s market…than in a buyer’s market?
Probably because of the way you’ve defined “seller’s market” - as one with an abundance of buyers.
So, you’re asking: “why are they more buyers when there are more buyers?”
See “tautology” and “begging the question” (the real definition, not the common misuse)
NVmike…
“Why is it that more buyers buy homes during a seller’s market…than in a buyer’s market?”
I stand by my statement. My definition of a seller’s market… Prices are higher during a seller’s market and there is less inventory to choose from.
“Probably because of the way you’ve defined “seller’s market” - as one with an abundance of buyers.”
Your definition, not mine.
My question to you…Since homes are more affordable now than in a seller’s market…why is it that the number of sales are down? …Interest rates are still very good.
When is the best time for the buyer to purchase a home?
“Most” buyers lose all common sense and discernment when shopping for thier “home.” Even newbie RE investors can’t help but get emotional about houses. You can print pages and pages of comps and go on house tours for months and MOST buyers will develop an emotional attachment to a house that OFTEN defies the logic of the numbers.
Even after you sit with buyers and determine their budget, they will often go over it or forget the budget altogether in favor of that one house that captures their hearts and imagination. So often I’ve planned out a weekend of house previews only to have my prepared list thrown to the side in favor of some list the buyer has printed out from the internet.
So there is a great dance that realtors must perform with buyers. We can’t just blurt out, “Hey, the houses on this list are all 25% over your budget. Are you insane?!?!?” No. you have to say, “Have you changed your mind about the price range we discussed earlier?” MOST buyers suddenly forgot they discussed a price range with me and just INSIST on seeing all kinds of houses outside the range.
Deal Hunter-
I think the insanity isn’t limited to the OOs either. I’ve talked to the investor or two who is convinced after a couple of HGTV shows that they too are gurus and their investment will take them to easy street.
Real investing takes hard work and research- but one too many late night info-mercials, and a lot of folks think they are geniuses.
Twist…
“Real investing takes hard work and research”…
There are a ton of people in the investment game who are working really hard & researching like crazy. Yet…only a small percentage of these people are successful (if success is defined by monitary wealth.) It’s the old 80-20 rule.
What seperates the 80% from the 20%?
Now a Las Vegas lawyer wants to go down the same path.
“Feeling cheated, homeowners sue”
http://www.lvrj.com/business/17590869.html
This lawsuit will go nowhere. If I’m not mistaken, RE agents and brokers are not fiduciaries. Maybe in the future they will be, but not now as far as I know. End of lawsuit.
Even if there’s broker fraud involved — OK, we know there was plenty — which of these plaintiff homedebtors is going to admit in court that they, too, signed a fraudulent home mortgage application? Or will they claim their income data was changed by the broker after they signed? I would bet that happened from time to time, but not in the majority of cases.
“By the way, we’ll need you to testify under oath that you didn’t lie to the broker about your income. Are you prepared to do that? Just one tip: you wouldn’t want to lie about that, or you’ll be heading to federal prison for a spell.”
Twist,
thanks for this update. I was curious about that and hadn’t seen or heard what happened. That is interesting that the original story never included the 80 homes previewed. I would think after 80 homes of a certain city the buyers should have had a pretty educated decision. It also brings to light that there is work involved in being a sucessful agent. How does the saying go? Buyers beware…? That case I thought was BS.
Hmmm… I think I called this one when it was first mentioned on Housingdoom! Too many variables come into play when trying to put a precise value on a home. It really comes down to the buyers, who must do their homework when evaluating any potential purchase.
Daddymunster asked: “When is the best time for the buyer to purchase a home?”
This may sound like a cop out, but the short answer really is, “Whenever it’s right for the buyer”.
Each case is different. I suppose one could answer, “buy low, sell high”, but that’s a gross, 10,000 foot level response, and not very realistic.
There are so many “when to buy factors” to consider that there really isn’t a one-size-fits-all answer.
Factors such as family status, credit, mortgage rates, housing inventory, job status, length of possession, current home status, and wants, needs and desires all come into play.
I just put an offer in today to purchase a house. We have been on the sidelines for almost 8 months waiting. We have sufficient money for a down, good fico, job history and so on. We put in a bid for a house that originally was listed at $389,000. Asking now after one year $255,000. Our bid $225,000. The question “When is a good time to buy a house”. The answer for me is now.
Boy, the Realtors are out and posting!
Guys, have you told your buyers that they are buying in a rapidly depreciating market and that it is very likely that their house will be worth substantially less next year than it is now? If not, have you really given them the complete fair and honest truth about whether it’s a “good time to buy”?
It’s funny, Deal Hunter says buyers lose all sense when shopping and insist on blowing their budgets, but I distinctly remember going home shopping with several different people, each of whom, with a different Realtor, had the Realtor picking houses to show them over and over that were at the very limit of or beyond the budget, and pushing them hard to stretch what they were willing to buy, telling them they’d be making more money in a few years, etc. Funny that a Realtor would say it’s the buyers that do this, not the Realtors, but I guess that should be unsurprising. Deal Hunter, maybe you’re different than most other Realtors I’ve ever heard of or worked with (or maybe not), but I don’t think the way you represent budget pushing is a fair picture of how this generally goes. Of course, anyone else here who’s ever worked with a Realtor can decide how it works for themselves.
Jim at law-
I think your mostly right about pushing budgets but most folks want to most bang for their buck right? I am a mortgage broker and I post all the time. I don’t post because I want business form here. I post because I find interesting articles here and want Twist to know I do appreciate her efforts. I bought on Oct 07′. I have stated before I know the the value is coming down rapidly. I also said once “they won’t be paying me to buy this house” and someone said houses n Dtroit were like $100 or something. (Which probably isn’t to far from the true) If that happens in PHX, AZ EVERYONE will be in trouble even if your house is paid for.
Buyers will always have the untimate say. Someone has to sell them the car, house, jewelry or whatever.
JimAtLaw-
In defense of our posting agents-
I think the majority of the agents out there are as you describe- they tend to try and encourage buyers to buy as much house as they possibly can. The agents who hang here on Doom with us though, tend to be a more responsible lot. I’ve talked to some of those same folks who are all to willing to get in over their head, so I know they are out there.
I am so grateful for all of our contributing industry people. Some of them you see posting, some of them contribute behind the scenes. They make no money for their efforts and receive very little public acknowledgement. Sure we see the occasional “astroturfer”, but they are the excpetion around here, not the rule.
At any rate, I believe Deal Hunter. Too many buyers go house hunting with their rose colored glasses on. But I do concur with you that conservative agents who preach frugality are probably in the minority. I’m glad our agents fall in thid category. : )
JimAtLaw asks: “Guys, have you told your buyers that they are buying in a rapidly depreciating market and that it is very likely that their house will be worth substantially less next year than it is now?”
Short answer; absolutely.
Longer answer - not only do I discuss market conditions and market economics with my clients (and prospective clients), I point them to posts I’ve written that do that as well. We provide full comps to all our buyers on any offer they consider or extend, and these comps include historical data as far back as we can find it.
I never have, and never will “oversell” a home. I also refer our buyers to lenders with the same philosophy and hope they choses to work with (and the vast majority do).
I don’t doubt that there are many agents out there that try to squeeze every nickel out of a buyer’s pocket. I know there are, I’ve worked across the table from them. But there are some conservative, honest agents how keep their clients best interest at heart.
Wow, too many typos. Too early and caffeine hasn’t set in yet. Sorry..
Huh, it’s April 16 and my anti-spam word is “hightax”.
Glad to hear it Phoenix Real Estate Guy, and I know there are others out there like Jim Klinge in San Diego.
The trick is, when someone says something like “Whenever it’s right for the buyer,” this does not give me confidence that they are getting all the data, and my own few experiences with Realtors have all been of the pushing-you-to-buy-and-to-spend-more-no-matter-what variety. It doesn’t help that the NAR is running ads on the radio every day and publishing ads in the newspaper which are gross misrepresentations trying to trick buyers into the pool.
For those of you who are honest and totally up front with all the data with your clients rather than exhibiting all the traits of dishonest salespeople in other product areas, I feel sorry for you - your colleagues and industry organizations are destroying your business and reputation, and if you don’t put a stop to it, I think perhaps your business will never be the same in your lifetime.
JimAtLaw -
In the past couple of years, anyone who could fog a mirror got a real estate license and got in on the plentiful commissions. I have personally seen these types of agents oversell a home.
I’ve been in the business over 10 years and have a referral only business - which means it more beneficial for me to serve the clients in the way I’ve described. I’ve seen other realtors have to go into hiding for creating a long list of clients with buyer’s remorse.
Being realistic about what a buyer can afford is a much better way to spend my time selling a house. The deals close faster (because there’s no last minute scramble for more cash to qualify for the loan, etc.).
I don’t blame you for your incredulity when it comes to realtors. Most of the newbies were caught up in the buyer’s market, especially here in Vegas and oversold a lot of homes. Besides being an agent, I am also an investor (mostly rentals) and I would not and could not endorse a purchase of any property that I wouldn’t feel good doing for myself as an investor, let alone a homeowner.