On Tuesday, a front page article in the New York Times, "Feeling Misled on Home Price, Buyers Sue Agent" has sure got tongues wagging in this business. On Friday, the buyers, Marty and Vernon Ummel of San Diego, landed on the Today Show and the story went national. In a nutshell, the Ummel’s contend that they were misled into overpaying for their house — they paid $1.2M, at just about the same time houses they contend are similar sold for $105,000 and $175,000 less. And now, in the declining California market, their houses is worth much less than the $1.2M they paid.
The case is interesting because the buyers were represented in the transaction by a buyer agent. They contend that it was the responsibility of the agent to provide adequate due diligence, and to provide them with the information that the houses nearby sold for less. (There are a lot of timing issues here that aren’t clear in the news articles that are relevant, like whether the houses were already in contract when the Hummel’s were looking, and therefore not available to be shown to them, as well as the listing prices for those houses and whether the agent had knowledge of the actual selling prices. In California during the boom, homes frequently sold for above their asking prices, and actual sales prices are not a matter of public record until a house is sold.)
Legal pundits commenting on the case seem to feel that the Ummel’s will not prevail in court. But it raises very interesting questions, especially about the information that agents are expected to provide to their principals, and who ultimately is responsible for providing due diligence on value. The case may be more clear cut in California, and tip in favor of the buyer agent, because real estate sales information is more readily available to the public online, and in a timely manner. But here in Sullivan County, it isn’t. There is no public website here providing timely information on closed real estate sales. (Realtors have access to data on properties sold through the MLS, but that doesn’t provide a total picture, either.)
At the end of the day, however, I can’t quite see the sinister money motivations that the Ummel’s seem to be attributing to their agent. If, in fact, the agent was working as a buyers agent, then this house wasn’t his own listing and he wouldn’t have the motivation to sell this particular house over another one to ‘double dip’ on the commission. The Ummel’s contend that the agent didn’t show them the other houses because it may have jeopardized the $30,000 commission on the house they bought, but if they ended up buying one of the other houses rather than the one they bought, the ‘loss’ would have only been the co-broke commission on the difference, not the loss of the whole amount. The buyer agent also works for Remax, which has a ‘rent a desk’ compensation model for agents, so there probably wasn’t some extra incentive for him to sell an in-house rather than out-of-house listing.
We’re the other houses listed properties? For sale by owner properties? Did they come on the market after the Ummel’s were in contract for their house? Did they have features that the agent deduced the Ummel’s would have rejected?
Like they say in the movies, follow the money. And I gotta say that — without really knowing the facts — that I’m not seeing a huge incentive here that would cause the agent to breach his fiduciary duty.
The outcome of this is going to very interesting to follow, and I hope more specific details will come out, particularly about when the listings came on, when they were sold, if there was a big commission gap or financial incentive for the agent.