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I Overpaid for the Home I Bought, So I'm Going to Sue my Realtor for Fraud

Real Estate Agent with Teles Properties

January 25, 2008 03:21 AM

This is my typical morning before I go to work: Have my cup of tea, turn on the Today Show for background noise, and read my morning paper.

This is my normal routine until something I heard on the Today Show that made me spit out my tea across the kitchen table:

A Buyer in San Diego is suing their Realtor for fraud because they overpaid for the home they bought in 2004.

I could not believe what I was hearing!!!!

The couple purchased their northern San Diego home in 2004 for 1.2 million dollars, and the basis of the lawsuit is that their Realtor did not disclose the fact that a few homes in their neighborhood sold for 100-150k less than what they paid for their home. They felt the Realtor was not doing their due diligence and was only looking for their commission.

Here is the video from the Today Show:

As I listened to the interview, this person was not losing their home, they were just complaining that they paid too much. Even the NBC Legal Expert told this couple that is the responsibility of the BUYER to satisfy their investigation of the property, including the comps because the information is public record. This expert explained to her that she doesn't know why the other owners sold for less. It could have been a divorce, job transfer, or the rooms were painted black. Her point was that home is worth what someone is willing to pay.

With the ramifications of the mortgage industry & looming foreclosures, is this going to be a new vehicle for people to blame someone for their problems? The posssibility of this is frightening.

So what can we as REALTORS do to protect ourselves? The same as we always have: DISCLOSE, DISCLOSE, DISCLOSE!!!

One of the forms that I am starting to use again is the Market Conditions Advisory disclosure form from the the California Association of Realtors (CAR Form- MCA).

Item A States: "Real Estate markets are cyclical and can change over time. It is impossible to predict future market conditions with exact accuracy In a competitive or "hot" real estate market, there are generally more buyers than sellers. This will often lead to multiple buyers competing for the same property. As a result, in order to make their offers more attractive, some buyers may offer more than originally planned or eliminate certain contingencies in their offers.

In a less competitive or "cool" market there are generally more sellers than buyers, often causing real estate prices to level off or drop, sometimes precipitously. In light of the real estate market's cyclical nature it is important that buyers understand the potential for little or no appreciation in value, or the actual loss in value, of the property they purchase. This Advisory discusses some of the potential risks inherent in changing market conditions.

By having my clients sign this disclosure, it let's them know that "my crystal ball" broke yesterday and that I don't know what's going to happen in the future. The Palm Springs Real Estate market has its cycles, and it will go up again in the future.

I know we all complain about the amount of paperwork we have in our real estate transactions, but this one form could save you time, money and a world of heartbreak from someone who doesn't want to take responsibility for their own actions.

Photo courtesy of Flickr

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Tammy Trenholm

Redfin Corporation - Haymarket, VA

Associate Broker - Real Estate Agent

I saw this too and thought about blogging on it. Real Estate is cyclical and you have to take the good with the bad. I feel they should be in it for the long haul. Just because the stock market takes a dip after you purchase stock, or the car you purchased looses value the second you drive it off the lot, does not automatically entitle one to sue someone. It will be interesting to hear the outcome of this one. If they weigh in favor of the buyer, it will make it difficult to be a Realtor. What other profession can get sued so easily?

Jan 26, 2008 11:49 PM

Adam Waldman

Westcott Group Real Estate Company - Hauppauge, NY

Realtor - Long Island

HAROLD - This is a really good idea to use a market conditions disclosure. It's kind of sad that it's necessary, but in this litigious society, it seems that there isn't much choice.

Jan 27, 2008 01:11 AM

Harold Watts

Teles Properties - Palm Springs, CA

Palm Springs Real Estate Blog

Jim- Whether you believe the buyer or the agent, this should be a wake up call to all the real estate professionals to do everything to reduce their liability and to DO THEIR JOBS. Make sure you run the comps, do your visual investigations, document & communicate with your clients. This profession is more than showing a few homes and picking up a check. I will be keeping my eye on this case!!

Sandra- You are right, he needed to be thorough and do his job. A simple task of running the comps & the buyer signing it or use the Market Conditions Advisory form, he would not be in this mess. We don't know all the facts, so much of this is all speculation. Stay tuned.

Matt- I read your article about the testimonial, and I think it is a great idea. All agents need to be proactive to do everything to reduce their liability of getting sued. We have to think two steps ahead of everyone else. Had he gotten a glowing testimonial letter from his client or used all the legal forms at his disposal, we would not be having this conversation.

Tammy- This case has raised eyebrows. On one side, you have the buyer who needs to take responsibility for their actions & decisions. If she didn't get the comps or information from her agent, she should have demanded them before removing any contingencies.

On the other side, you have the agent who didn't do everything to the best of his abilities to protect himself from future litigation. Add the fact that his company also supplied the loan for his client, adding another of duplicity in the buyers eyes. This is going to play out in the courts as well as the media. Everyone be prepared!!

Adam- The Market Conditions Advisory form has been readily available for over 3 years. This form can protect any agent from situations like this. I think every REALTOR association should have it as a mandatory form for their real estate transactions.

Jan 27, 2008 03:28 AM

Jim Crawford

Long & Foster - Fredericksburg, VA

Jim Crawford Broker Associate Fredericksburg VA

I fully agree!

Jan 27, 2008 03:36 AM

Nikki R Aguirre

Nikki Aguirre - Broker - Temecula, CA

She may have a case if her Realtor did not give her a choice of lenders to work with. If the Realtor recommended the loan officer to work with they may be able to prove the possibility of collusion. We always recommend a loan officer, and request our clients to choose and compare with any loan officer of their choosing. This puts the burden of responsibility back on them. They make the choice - they deal with the consequences.

The problem I see with the E and O insurance is that they like to SETTLE. They take the least expensive route...and we have to pay for it! Can we get a law passed that compesates Realtors some punitive damages for having to deal with BS like this??

Jan 27, 2008 05:10 AM

Harold Watts

Teles Properties - Palm Springs, CA

Palm Springs Real Estate Blog

Alex & Nikki,

The problem is not with the lender, but with the fact the buyer said her agent did not give them comps for the neighborhood. The buyer used the the mortgage company which was affiliated with the real estate company. Because the agent works for RE/MAX, his client would have to sign a business affiliation disclosure.

Another interesting point to bring up....When the purchase agreement was being written up, did this couple offer full-price for the home? If not, how did they come up with a price to offer? For me, it is up to my clients to choose a price to offer on a home in Palm Springs, based on the information I have given them.

Jan 27, 2008 05:26 AM

Latonia Parks

Top Bragg Realty, Fayetteville NC, Home of the 82d ABN DIV - Fayetteville, NC

Certified Military Relocation Expert

There are so many people out there who are looking to make a dollar. I just pray that this doesn't open a window for other senseless accusations.

Jan 27, 2008 11:02 AM

Matthew Zgonc

Aksland Real Estate - Modesto, CA

Realtor, CFS, CVS

disclosure is essential to stay out of court.

Jan 27, 2008 12:23 PM

LaNita Cates

REMAX of Joliet - Joliet, IL

Realtors are getting such a bad rap from stupid lawsuits like this. Unbelievable!

Jan 27, 2008 01:35 PM

Meg Zoller

Keller Williams - Houston, TX

Houston Fine Homes

Harold - They're absolutely insane!! I keep overpaying for gas . . .but I choose to because I need to drive to make my living. Should I sue because another gas station several blocks away is selling gasoline for 20 cents less than the one close to me. I don't think so!!! People need to take responsibility for themselves. Having to get a disclosure like the one you presented is more work . . .and honestly, shouldn't be needed by anyone.

Jan 27, 2008 05:22 PM

Liz Carter

Liz Carter & Team Realty-Your Real Estate Resource For Life! - Katy, TX

Broker/Owner of Liz Carter & Team Realty, Katy TX (Houston)

I'll just ditto Meg...32 years in this business, I've always believed that 80% of people out there are nuts, and they other 20% need to be locked up :). Have a great 08, Liz

Jan 27, 2008 06:15 PM

Harold Watts

Teles Properties - Palm Springs, CA

Palm Springs Real Estate Blog

Latonia- Unfortunately there will always be senseless accusations in our profession, people are looking for scapegoat for their problems. We as REALTORS have to protect ourselves from the litigious society we live in.

Matthew- I completely agree with you!!

LaNita- 95% of all REALTORS are doing their jobs responsibly, but it is the ones who make a mistake that gives the bad rap to us all. I don't know all the facts of this case, but it should be eye-opener for all REALTORS. Do I think the buyer has brought a senseless lawsuit? Yes. Do I think the REALTOR did everything to protect himself from liability? No.

Meg- I agree with you that people need to take responsibility for their actions. This lawsuit about overpaying for a house is just frivolous. I disagree with you about the disclosure.

It is unfortunate that we have to use disclosures like the Market Conditions Advisory but it is a fact of life in our business that we have to do this. This disclosure came out during when it was a Sellers Market in real estate, when buyers were paying above asking to get the homes they wanted. It was a feeding frenzy!! Had this REALTOR in San Diego used this form, he probably would not be in this situation. I would rather have my clients sign one more form, rather than go to court because of lawsuit. To me, I don't view this as more work, but MY JOB.

Liz- LOL...There are many crazy people out there, but such is life. Thanks for your comments

Jan 28, 2008 03:05 AM

Anonymous

Paul Gutierrez

How can there be a loss of money, if the owners haven't SOLD!!!

01/26/2008 07:28 PM

by Sandra Carlisle - Corona del Mar Real Estate

The difference is price between her house and the other comps is less than 200k, and she doesn't plan on moving. What is her problem??

01/26/2008 08:51 PM

by Harold Watts' Palm Springs Real Estate Blog

Sandra and Harold I've got a beautiful piece of artwork (original Dali's) for each of you. For the low low price of $200,001.00. Never mind that if you did your homework that this "art" can be bought for $1. As a reputable broker, and worth every 6% commission I get, I guarantee you won't lose money on this deal. How? you ask me. Well my friends, with a capital F, just don't sell the art. You can't lose! And besides, they'll make wonderful heirlooms to hand down for many generations.

Jan 30, 2008 10:15 AM

#46

Sandra Carlisle (Ayers)

Berkshire Hathaway California Properties - Newport Beach, CA

Real Estate Marketing & Sales

Paul, you are missing the point entirely. I'm not talking about a purchase that is a dollar, for something that you hang on your wall. We are talking about a home purchase, something that you live in that has a lot more benefit than a painting. But I'll humor you and use your own "comparable" to clear this up.

She says she paid $1,200,000 for the home and based on "comparables" she feels she overpaid by $105,000. $105,000 is approximately 8.75% of the purchase price.

Let's say I bought your Dali for $200,001. Then I see other "comparables" for $1. Then I say I over paid by $200,000. Then I would have overpaid by 20,000,000%. (Twenty million percent) Yes I would be ticked and would be bringing you to court.

But she didn't pay $21,000,000,000 (That's Twenty on Billion dollars) for the house, as in your Dali example.

But I just might buy your Dali for $1.09. Which is how much she said she overpaid by. Even if all the other Dali's sold for $1.

Is is possible that the market price could have dropped in San Diego from the time she bought the home to the time the comparables closed? Can homes in the same neighborhood vary by 8.75%?

San Diego Graph of Inventory 2004-2007

Look at this chart and tell me if the price of the home could have decreased by 8.75% based on what the inventory did between 2004 & 2005. (Inventory is in blue, solds are in gold/yellow.)

While I agree that if CLOSED comparables were purposely hidden from her, that's another story, especially if outside tract comparables supporting a higher price were given to her instead. She seems more hung up on not being able to see the appraisal. Most buyers refuse to close if they aren't receiving requested documents, so it may just be that neither the agent nor buyer were doing their due diligence. Until all the facts come out, I'm reserving my judgement on either side, but it does raise interesting discussions and reminds me to keep my contracts tight and have the buyer sign the comparables.

Sandra

Jan 30, 2008 01:52 PM

Anonymous

Paul Gutierrez

Sandra, Perhaps my point was too subtle. What I was addressing was the tired and misguided notion proffered by the real estate world that " if you don't sell your home you haven't taken a loss?". And as to your effort to analyze my inflated Dali analogy, you miss a substantive point in real estate investing. The money at risk is not just the $1.2mm (and the associated carrying costs of such) but the equity invested. In the time frame of this sale any downpayment would have been surprising but let's assume that a more traditional amount equivalent to 20% of the home's value was invested. That would put the amount at personal risk of $240k and thus their angst due to the fact that ~50% of their equity evaporated (not the 8.75% result derived from your math). While not a big fan of lawsuits or ambulance chasers, I am also not a fan of the sheep like mentality of the residential real estate broker. Presenting themselves as knowledgable, experienced experts in the fine art of representing prospective homeowners on making the single largest investment of their lives. And yet to what level of education, regulation and licensing are re brokers held to? I would certainly not suggest that every attorney, securities broker, doctor, etc are competent or trustworthy because of the licensing requirements of their fields but I can only imagine the standards by which realtors and mortgage brokers were held to as the field was swarmed with every Tom Dick and Jane as the markets went crazy. Do I accuse all brokers of such implied incompetence? NO. But several responses to the lawsuit mentioned above scoffed at the homeowner as being the likely incompetent and yet no one second guessed your remark regarding "How can there be a loss?". That is incompetence and sheep like. Would a commercial broker be so naive in there financial assessment of the situation? Perhaps as some suggest above, this will serve as a warning to brokers to CYAes with appropriated documentation. That's good for the customer and good for the broker. But better yet, should realtors take this opportunity to professionalize the industry, real estate transactions and mortgage banking? It won't eliminate every problem but wouldn't you all sleep better if you knew your friends and family were being represented by someone with extensive education and training and industry imposed regulation? Or would you rather see a realtor hang a shingle for a few years in the good times competing for your business, sullying the reputations of the industry. When I first looked at this profession in the late 70's early 80's, it seemed to be dominated by housewives keeping themselves busy. With the escalation in homevalues and corresponding economic opportunity, a broader base of more sophisticated people have tried to make this their career. But when you see the riff raff that comes into the industry on the upswing, looking to make a fast buck, with minimal hurdles to enter the market, can you say that the industry has done enough to qualify the "professionals" that populate this profession. Worse yet, I would be surprised if anyone on this site could deny knowing several people in the industry who they felt were incompetent. When people are relying upon the guidance of brokers to make one of the most significant financial and emotional decisions in their lives, why would they expect anything less than the most qualified "professional". To become unassailable, the industry needs to adopt a much more rigorous screening, training and policing approach to how the business is conducted. Not too long ago the securities industry was hammered with substantial fines for brokerage houses that misled investors during the dotcom boom. Suggesting a client can't lose money if they don't sell their house is like my stock broker telling me I can't lose money on Yahoo at $400 if I don't sell at $50. And please don't give me the argument that the family is deriving value from living in the home. On an after tax basis they're taking a bath compared to renting a comparable home. But I'm sure you've done the math.

Jan 31, 2008 10:17 AM

#48

Harold Watts

Teles Properties - Palm Springs, CA

Palm Springs Real Estate Blog

I just love a good-spritied debate!! Who would have thought that after a week of writing this blogpost, that the discussion is still on.

Paul, this case will be a wake-up call to all REALTORS to tighten up their business practices and we will all be watching the outcome of this case.

Jan 31, 2008 01:03 PM

Sandra Carlisle (Ayers)

Berkshire Hathaway California Properties - Newport Beach, CA

Real Estate Marketing & Sales

Paul, your point was so subtle that your analogy had nothing to do with what you were trying to say.

Since I didn't have my crystal ball out to catch the subtleties you were trying to convey to me, I will go ahead and answer the question I think you are really asking, which is, "Why do agents think that no one has lost money if they haven't sold their home?". Let's go ahead and stick with Yahoo since you brought it up, with no math involved...

Let's assume you do buy Yahoo when it's $400 a share. Let's assume that at that time in the market and at that price, a seller agreed to sell it for $400 a share and a buyer agreed to pay $400 a share. That is how market price is established.
The very next day, something happens, and your "investment" in Yahoo plummets to $50 a share.
You say to yourself, "This really sucks! My stock is down $350 a share. I feel like an idiot. I might have made a bad investment, wish I could turn back the clock and negotiate a lower price."

You don't really lose your $350 until you sell the shares to a buyer who is willing to pay $50 a share and you are willing to sell your stock in Yahoo at $50 a share. You can't write off the loss until you SELL and TAKE THE LOSS.

If that doesn't make sense, let's reverse it.

Let's assume that you buy Yahoo at $50 a share. A seller agreed to sell and a buyer agreed to buy at $50 a share, also known as market price.
The very next day, something happens, and your "investment" in Yahoo skyrockets to $400 a share.
You say to yourself, "This ROCKS!!! My stock is up $350 a share. I am a GENIUS! I just made the best investment ever, I bet the previous seller wishes they hadn't sold. HE HE HE"

But, do you really have the money if you don't SELL the stocks? Isn't it all really just speculation until you take the gain to the bank?

Next time, just for you Paul, I will be clearer in my follow up comments and say, "How can the homeowner actually claim a loss when the loss hasn't been realized?". Fair enough?

_____________________________________________________________________________________________________

Here is a point I agree with you on. I do think there is a lot of riff raff in my industry and I am happy to see this market picking them off one by one. I also think that the consumer is not as incompetent as you are making them out to be. The consumer has choice and a lot of it. They can choose who represents them just like you can choose which lawyer you use, which mechanic, etc... Some are better than others and they all charge different fees. Agree?

I am willing to bet that the buyers felt that there was a financial incentive to use someone doing both the loan and the sale. I'm willing to bet they thought they were saving a percent or two, at the time they chose their representative. They chose to use someone who was a part-time realtor with a second job as a lender, or vice versa. A jack of all trades is a specialist in none.

If you are buying in a neighborhood, wouldn't it make sense to drive around the neighborhood? Wouldn't it make sense to call on any other signs in the neighborhood? Or ask your agent what is going on with those other homes in a tract of only 26 homes? Maybe you'd schedule an appointment to see the other homes? Or maybe that's just how I shop?

So, yes, I would like to see the riff raff gone. Unfortunately we live in a capitalistic society where everyone is trying to turn a buck, usually on the backs of others. So if you happen to stumble upon the Utopia you describe above, let me know because I want to live there, I am even willing to pay 8.75% more than the one up the street if the house in Utopia has a private backyard.

Ohh, I almost forgot... They could have chosen to be renters instead of homeowners.

Again, this is all HYPOTHETICAL assuming that their representative didn't maliciously inflate the price over market. That is a completely different story and we currently do not have all the facts. Paul, do you mind initialling that for me?

Jan 31, 2008 02:00 PM

Anonymous

People should start suing real estate agents

My stockbroker can't tell me that buying stocks on margin is a good idea,
but the N.A.R. somehow gets to tell us that housing is a good investment,
encouraging us to use margin (leverage, mortgage loans, debt) to increase our
payoff, without even a footnote about the risk of leverage. What's up with that? Are they trying to position themselves as investment advisors? See below:
The National Association of Realtors (R) wants you to know that home values usually double every 10 years. They also want you to know that Real Estate is a great way to build wealth. They want you to know that the only people who can possibly do a good job of helping you sell or buy a home, are Realtors(R). They have launched an advertising campaign using TV ads, print ads, billboards, radio commercials, bus shelter signs, and posters, all to tell us, the ignorant public, that 1) we really, really need a Realtor(R); 2) Realtors(R) are terrific, honest human beings; and 3) Now is a Great Time to Buy a House! They don't qualify that statement, so don't try to sue them if you buy a house and lose your shirt - now is a great time to buy - a great time for Realtors(R).

One ad says: "You might be wondering if buying a home right now is a smart financial decision. The fact is, homeownership is key to building long-term wealth, no matter when someone buys." They cite a N.A.R. study as evidence of their claims that real estate is a better investment than stocks. "Thanks to the power of leverage, a homeowner's return on investment is even more impressive over time. For example, over 10 years, a $10,000 investment in the stock market at a normal 10 percent market rate of return would yield $23,600. The same investment as a down payment on a $200,000 home at a normal appreciation rate of 5 percent would return nearly 5 times the stock market return, at $110,300."

Feb 03, 2008 04:12 PM

#51

Sandra Carlisle (Ayers)

Berkshire Hathaway California Properties - Newport Beach, CA

Real Estate Marketing & Sales

In California, we do have a footnote about risk. It's called a Market Conditions Advisory (actually it's a whole page) and it states, in a nutshell, that markets go up and markets go down. If you were working with an agent who didn't provide this "footnote" to you, you were working with the wrong agent. I'm now giving this form to my seller's as well because I'm sure it's just a matter of time until we see a lawsuit about a seller suing their agent because they sold at the bottom of the market and lost money...

Feb 03, 2008 06:54 PM

Anonymous

Mike

Well I have a comment to all of you. I take full responsibility for the loss on my home - but I had and PAID a buyers agent to help me in locating one. She absolutely convinced me and even the appraiser that based on her comps and work the home was worth what we paid. Well she is a very experienced RE agent who kows this market and I believe knew we were overpaying (out of town buyers). Anyhow here we are 15 months later and neighbors are selling their homes for almost $50k less !!!! on $250k houses... I will NEVER trust an agent to help me with my selection again. What did I pay for? I paid her $7500 so I could lose $50k. You talk about whining. I'm not whining I am pissed ! I am a professional too, and obviously one that isn't good at picking real estate. Had to move at a bad time, sucked up the loss on my last house never missing a payment on either while I owned both. Then walk right into this. Partly the market, Partly me, but definitely PARTLY the agents fault !! Don't represent to a buyer that you know about valuations and then back peddle and say no it's your fault cause your the buyer. Real Estate agents need to take responsibility too just like the appraisers and banks that caused this entire mess.

I'll survive and take another huge hit but I NEVER again will pay a dime to a RE agent as a buyers agent. And you guys get away with this with no isues and no recourse. I want to sue my selling agents and appraiser and anyone else I can - but I know it's not feasible. I am not happy with this real estate agent for sure ! As I said don't represent you know what you are talking about on valuations and then use some excuse like you can't tell the future or markets vary or the law says buyer beware. I honestly thought RE agents were a cut above, not anymore.

Dec 20, 2011 11:47 AM

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