Just got another lawsuit as an expert witness - Agent's screwed up bigtime!

Education & Training with Real Estate Expert Witness Support

Imagine this.  The client (relatively unsophisticated) owns a little renthouse.  It goes up in value and down in basis because of depreciation. Their accountant tells them it is not doing them much good and that maybe they should consider trading up.  They contact their agent who sold them the house.  The agent convinces them that real estate is where all the action is.  He convinces them to take $500K out of their house (yes,  we are in California) and they put it and the proceeds from the rent house down on a large commercial building in Mississippi.  No reason to grown.  There are vialble businesses in Mississippi too.

The building has a midsized company with a long term lease,  which they liked.  Unfortunately, the agent was a residential agent and did little or no due diligence.  I haven't determined if the agent was dishonest or just too stupid to know what to do.  A few months after close of escrow,  the company goes bankrupt.  They can't find another tenant and lose the building and still owe the $500K on their home.  And, the lender is threatening to give them a huge 1099 for the mortgage forgiveeness and possibly go after them for deficiency judgement.  Wow!

It is critical that an agent make sure they get all the financial documents to be able to investigate the quality of your major tenant.  And,  if you and your client don't feel qualified to review the financials, then hire someone to do it for you.  We don't do our own roof inspections, so why would you think you can analyze the financials of a corporation?  You can't unless you have an accounting background.  And,  to top it off,  it turns out that the financials that were provided were two (2) years old. Clearly, if someone would have investigated the financial strength of the company,  they would have seen the problem coming miles away and would not have closed.

Sometimes,  I get negative feedback from other agents when they find out that I testify against agents. I also testify in defense of agents when I get hired on that side.  But,  based on the facts,  how do you feel about this agent?  Most of you are aware that our industry has a really bad reputation.  Based on the minimal requirements in most states to get a license,  I think that we as a whole,  pretty much deserve the rep we have.  Unfortunately,  it makes it really hard for those of us who are really trying to do it ethically and correctly.

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Guy Berry

Email - guy@guyberry.com

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Comments (11)

Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
Buy Daytona condos for heavenly good prices


The license we get allows us to help sell and buy real estate in a particular state. There is no other requirements as to specific knowledge in any field. You can start from selling a $5 Mil Strip Center.

There is a problem with that. The results of similar situation, is what you are describing

Nov 14, 2009 03:34 PM
Ralph Gorgoglione
Maui Life Homes / Metro Life Homes - Kihei, HI
Hawaii and California Real Estate (310) 497-9407

It sounds like it was a residential agent who had no business doing a commercial sale.

He should have referred it out to a commercial agent.

Nov 14, 2009 03:37 PM
Dan Tabit
Keller Williams Bellevue - Sammamish, WA

Incompetence is not an excuse, just like ignorance.  Don't practice in areas you are not qualified without serious supervision.  Disclose, disclose, disclose and refer to clients to competant counsel when over your head.  Have some integrity and know your limitations.  I have no problem with you testifying against the guilty. 

Nov 14, 2009 03:45 PM
Charles Perkins
Charles G. Perkins, CPA - Burien, WA

It does not sound like this agent had their clients best interests in mind.  Clearly they lacked any experience in commercial transactions and did not assist their client in their due diligence.  Sounds a lot like the primary interest was the pay check.  I don't that the agent had any clue about the Mississippi market either.  So they were probably completely out of their comfort zone and competence area.

Nov 14, 2009 04:04 PM
Janna Scharf
Keller Williams Realty Coeur d'Alene - Coeur d'Alene, ID
Coeur d'Alene Idaho Real Estate Expert

Like you said, you don't know if the agent was dishonest or stupid.  I wonder why teh BUYER didn't do a little due diligence of his own.  If he wasn't involved enough in his own purchase of a commercial property to notice 2 year old financials, he had no business buying that property.  

Nov 14, 2009 05:36 PM
Janice Roosevelt
Keller Williams Brandywine Valley - West Chester, PA
OICP ABR, ePRO,Ecobroker

What a mess and it does sound like the almighty dollar was the focus, and not the client's.

Nov 14, 2009 10:26 PM
Alexandria Virginia
Featuring Susan Craft, CRS, REALTOR® - McEnearney Associates - Alexandria, VA
Real Estate Editor

Some agents just don't know when they are wearing the wrong hat or when they need to call in another hat. 

Nov 14, 2009 11:05 PM
John Thomas
E3 Green HOMES - Boulder, CO
EcoBroker, MSEE, MBA

Yikes, what a mess. Sounds like an agent with a serious lack of common sense.

Nov 14, 2009 11:09 PM
Michael Setunsky
Woodbridge, VA
Your Commercial Real Estate Link to Northern VA

Guy, this is a good example of someone working beyond their level of expertise. A referral would have saved a lot of trouble.

Nov 15, 2009 12:59 AM
Sallie Williams
Keller Williams Realty RED STICK PARTNERS - Baton Rouge, LA
REALTOR - MBA, Baton Rouge

Why is there a suit against this agent?  He/she obtained the financials and made the financials available to the buyer.  It seems to me that the buyer was solely responsible for requesting more current data, and the decision to buy or not to buy the commercial property was his alone.  The buyer could have hired a CPA to provide a second opinion. 

Nov 15, 2009 01:10 AM
Gerry Michaels
Glasswork Media Arts - Gettysburg, PA
GettysburgGerry Social Meida

This agent was clearly out of their realm of expertise, they had no business handling this transaction, however I think the clients own a bit of this as well. Did they ask the agent how much commercial experience he had, did they consult an attorney regarding such  a lerge money deal? This agent was either dishonest or stupid as many have stated, but the difference is dishonesty is clearly illegal, while stupidity may not be. A big mess that caused alot of pain that could have been avoided.

Nov 15, 2009 01:12 AM