Buyer Agents Beware

By
Real Estate Broker/Owner with Buyer's Broker of Northern Michigan, LLC

The case of a California couple who are suing their real estate agent because they feel they overpaid for their home in 2004 has ignited a firestorm within the real estate community.  The N.Y. Times featured the case in a recent article, and the Today Show will also apparently be running a story on the suit.  Amazingly, according to NAR, this is the first known case where a buyer's agent has been sued by a buyer over valuation issues. 

According to the article in the Times, Marty and Vernon Ummel purchased a home in 2005 using the services of Mike Little, a veteran agent with Re/Max Associates.  The Ummels claim that Mr. Ummel, who was also working as a mortgage broker, encouraged them to obtain their loan through him.  The suit charges that the Ummels  requested a copy of the appraisal ordered by Mr. Little prior to the closing, but that it was not provided to them until after they moved into the home.  

The Ummels apparently realized something was amiss when they got a flier from another real estate agent in August of 2005, a few days after they moved into their home, which showed that a house up the street had just sold for $105,000 less than theirs, even though it was the same size.  When they finally got their appraisal, they learned that the house up the street was not only cheaper, but that it also had a pool.  In early October of that same year, they learned from a separate flier that yet another similar sized home on the same street closed the same day as theirs but sold for $175,000 less.       

The Ummels accuse Mr. Little not only of withholding information, but of exaggerating the value of the house to push them into a deal.  In her deposition, Mrs. Ummel testified that Mr. Little had told them "many times that it was a very good buy."

In an interview with the Times, Mr. Little called the case "ridiculous,", adding: "The lady's a nut job.  I didn't do anything wrong."  He blamed the suit on a declining market.  "When people see their home values and assets declining, they always feel there's someone to blame," he said.  "This is a dangerous time for all of us in the industry," Mr. Little remarked.   

The mortgage broker and the appraiser, who was accused of skewing his report to make the Ummel's house seem worth the purchase price, have both settled out of court.  The case against Mr. Little and Re/Max Associates is scheduled to go to trial on Monday, January 28th in San Diego County.

If Mr Little did indeed fail to disclose the appraisal/prior sale information to his clients in order to save the deal, and his reported $30,000 commission, he has almost certainly breached his fiduciary duties to his clients as their buyer's agent (if he was in fact acting in that capacity, as there was no signed buyer agency agreement).  The duty of an agent to disclose material information to their client is well-recognized.  It is difficult for me to imagine a scenario where a recent comparable sale just up the street of which an agent has actual knowledge would not be considered to be material.  If an agent has knowledge of any information which may influence their client's decision whether or not to purchase, that information is material and must be disclosed.  

The fact that Mr. Little was also acting as the Ummels' loan originator is also of concern.  Buyer agents must be cognizant of any relationship which could potentially pose a conflict of interest between the agent's duty of loyalty to their client and their own financial interests.  A number of agents commenting on this case have repeated the old adage that "pigs get fat and hogs get slaughtered."  Greed, and the viewing of a client as a profit center, rather than as a principal, can easily lead to legal liability for breach of one's fiduciary duties.

Undoubtedly, there have been a number of instances in recent years where buyer agents have not fulfilled their fiduciary obligations to their clients.  Up until now, soaring property values have masked many of these shortcomings.  With property values now in freefall, one can expect that buyer agents who have failed to fulfill their fiduciary duties to their clients will be called to task.

Northern Michigan Real Estate Blog    

Comments (31)

Sandra Carlisle (Ayers)
Berkshire Hathaway California Properties - Newport Beach, CA
Real Estate Marketing & Sales

Hi Stefan,

Sorry, I should have explained the graph better.  I'm so used to using it weekly that I've started taking it for granted.

That particular graph is called the "Market Activity Index"   I set the date range for January 2004 through the end of December 2007 so we can see what the market has done since the buyer bought in 2004.  If I read your recap of the situation correctly, they bought in '04 and had problems with other similar homes selling for $100,000 less in '05.  (Let me know if I'm wrong, but either way, I say let a jury of peers decide and if the agent was unethical, let him take his medicine...)

Anyways,  this graph shows the inventory levels (blue)  and properties sold.  The horizontal bar at the bottom indicates what type of market the area is in.  In this case, the blue slider that is normally there has completely disappeared off the right somewhere.  The activity index number shows just over a 9 month absorbtion rate.  This is a called a "Super Buyers Market" or "Please don't say I have to sell now unless I'm buying up!". 

If you look at the inventory just from 04 to August of 05 you see an increase of 80%-90% depending on when in 04 they bought. 

Sandra

Jan 25, 2008 02:39 AM
Stefan Scholl
Buyer's Broker of Northern Michigan, LLC - Petoskey, MI
Northern Michigan Real Estate

Wow, Sandra.  What a turnaround in the San Diego market!  As I understand it, the buyers bought in the fall of '05.  Thank you for sharing this information on the San Diego market with us.

Dan - It sounds like your own personal standards of practice are excellent.  With respect to pending agreements, those aren't even routinely reported in my MLS.  In this case, I believe the sale information had already been reported and was contained in the buyers' pre-purchase appraisal.  That, I believe, is what the claims of non-disclosure are based upon.  Heaven help us if we are held responsible for knowing pending purchase prices.

Jan 25, 2008 07:15 AM
Sandra Carlisle (Ayers)
Berkshire Hathaway California Properties - Newport Beach, CA
Real Estate Marketing & Sales
I hope they don't expect us to know pending prices especially when the pending listing agent could possibly be sued for a breach of duty to the seller should the deal fall apart before COE and have to go back on the market. How could he know that something would close same day and much lower. I'd like to know how comparable condition, upgrades and location are. Maybe I'm desensitized to prices because of the area I work, but if it's nicer and better located, it could easily have been worth more at the time. Besides, agent actions aside, how can she have a loss without having Sold the property? Without actually losing money?
Jan 25, 2008 07:56 AM
Monika McGillicuddy
Berkshire Hathaway HomeServices Verani Realty - Hampstead, NH
Southern NH & the Seacoast Area
I think this case is one to watch...I hate the thought of them winning but it also sounds like some questionable stuff happened on the agents part.
Jan 25, 2008 12:16 PM
Lola Audu
Lola Audu~Audu Real Estate~Grand Rapids, MI Real Estate - Grand Rapids, MI
Audu Real Estate~Grand Rapids, MI ~Welcome Home!
Sandra makes a very good point...how do calculate a loss without a sale to prove it?  That being said, this case should be closely watched.  It raises a lot of questions...Are agents responsible for knowing about sales which have not been reported?  And...when agents wear two hats do they place themselves in a quandry by looking like they are looking out only for themselves? I know some agents who feel that they do a better job by helping their clients with the mortgage process...rather than leaving them in the hands of someone may not be experienced and is not required to be licensed.
Jan 26, 2008 09:41 AM
Stefan Scholl
Buyer's Broker of Northern Michigan, LLC - Petoskey, MI
Northern Michigan Real Estate

Excellent points, Lola.  I'm not sure whether the property has been sold.  The issue of unreported sales is a difficult one.  I spend a lot of time on the phone with local property assessors researching unreported sales, especially when property transfer valuation affidavits have been utilized in connection with non-MLS sales.  But then, I feel like people hire me for my research/negotiation skills.  I also understand your point about acting as an agent and a mortgage broker.  I think that I could actually save clients money in many instances by acting as their mortgage broker also.   Although I think it would be important to have the mindset that you are trying to help your client get the best deal, rather than squeeze every penny out of them. 

I think what is really objectionable about this case is the allegation that the agent withheld known comps from the client to protect the deal, rather than to protect the client.  If this turns out to be the case, I think that the agent should pay the piper. 

Jan 26, 2008 11:57 AM
Mitchell J Hall
Manhattan, NY
Lic Associate RE Broker - Manhattan & Brooklyn

Any one is this country can bring a lawsuit against any one for any reason. Wheteher or not it has merrit is a different story.

Real estate is local and every state has their own laws. I am not familiar with California law but New York is a BUYER BEWARE state.

In NY State if there is no signed buyers agency agreement or signed disclosure about the relationship between buyer and agent the state considers the agent to be a sub agent of the seller and the fiduciary is to the seller.

Jan 27, 2008 01:37 AM
Ryan Morgan REALTORĀ®
Barnhart Associates Real Estate - Eugene, OR

Here's the story as it appeared on the 'Today' show:

http://www.msnbc.msn.com/id/21134540/vp/22838905#22838905

Jan 27, 2008 06:23 AM
Robert Smith
Preview Properties, PC - http://www.RealEstateMich.com - Brighton, MI
SRES, Search for Homes Brighton-Howell-SE Michigan
Sounds like a good reason to NOT be the Realtor(R) and the loan originator in the same transaction.  What's that old saying?  Pigs get fat, hogs get slaughtered?  Hmm.
Jan 29, 2008 01:09 AM
Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services
We need to see the evidence -- there have been a lot of allegations from the plaintiffs, but we really don't know the facts regarding the defense.  I think a lot of people may have rushed to judgment here.  It will be intresting to hear the other side of the story and whether or not plaintiffs can prove any damage resulted from the alleged conduct of the buyer's agent.
Jan 29, 2008 07:39 AM
Stefan Scholl
Buyer's Broker of Northern Michigan, LLC - Petoskey, MI
Northern Michigan Real Estate

Mitchell - Indeed, buyer beware seems to be alive and well in the industry.

Ryan - Thanks for the link.

Robert - I agree with you that wearing two hats certainly does create the potential for problems.

Joan - I agree with you that we don't know the fact yet.  However, a lot of damage has been done, regardless of the outcome. 

 

Jan 29, 2008 09:55 AM
Carla Muss-Jacobs, RETIRED
RETIRED / State License is Inactive - Portland, OR

Hey Stefan, thanks for adding me . . .

About Ummel . . . hmmmm . . . my personal/professional issues are very different.  First, I think the buyers are complaining that they weren't given the appraisal, that they weren't told about the comps in the area. 

My understanding is that they Ummels have already gone after the appraiser, lender and they have settled with them already. 

My understanding is that one house closed the same day.  It was $105,000 less.  If this is true, then the "sold" comps wouldn't have been reflected in the MLS until the agent updated that in the system.  Had the ReMax agent (Little) pulled comps for the Ummels' property of interest prior to writing up the offer, the house might have been "PENDING" in the system with no sales data available.  Also, the other home that sold for $175,000 less was a sale 6 months prior.  I only take the last 3 months of activity for my comps, and I tell my clients "I only go back 3 months." 

Second, the Ummels made two offers prior to having their ReMax agent write theirs up.  And they fired another agent before going with Little, the ReMax agent.  I would say that the Ummels toured properties and would have had a good sense of the (then) current market.

The entire case falls on one document . . . the offer.  Without that offer being written up, the appraisal isn't ordered, the comps aren't done (or not done in this case).

It was the buyer who made the offer for $1.2M, not the agent of 26 years experince.  I can't imagine him being that stupid.  If he told them to offer $1.2M then I would say he gets what he deserves.  The Ummels must have felt their offer of $1.2M was what they wanted to pay for that house, OR ELSE . . . they could have offered LESS!

Any buyer knows this.

And the Ummels, on the one hand, want to be perceived as buyers who got taken . . . unsophisticated, at the mercy of their agent who (allegedly) duped them.  Yet, they have good control on turning down, backing away from two previous offers.  And firing an agent.  They seemed to be on the ball to me.

If the Ummels didn't want to buy that house for $1.2M they could have/should have written up the offer for LESS IMHO!  The seller could have accepted, rejected, or countered. 

Feb 01, 2008 11:31 AM
Robert Smith
Preview Properties, PC - http://www.RealEstateMich.com - Brighton, MI
SRES, Search for Homes Brighton-Howell-SE Michigan

Good points, Carla.  It will be interesting to watch as the situation progresses.  At any rate, the buyers have done a hack of a job with publicity - and with a national morning show appearance, no less!

Part of me wants to believe that the real estate agent did no wrong and this is just another case of citizens feeling that they are never responsible for their own choices and that they are the victims.  I am bothered by the fact that he was also the loan originator for the buyers, though. 

I'm sure we'll be hearing more about this in the future.

 

Feb 03, 2008 01:51 AM
Stefan Scholl
Buyer's Broker of Northern Michigan, LLC - Petoskey, MI
Northern Michigan Real Estate

Carla,

Thank you for your comments.  I do agree with you that if the house which sold for $105,000 less closed the same day, the Ummels' buyer agent should probably not be on the hook.  My understanding of the facts is that the house sold far enough in advance of the closing to be used as a comparable sale in the Ummels appraisal, which their agent had prior to the closing. 

I don't feel that I, as a buyer's agent, should be held responsible for disclosing pending sales prices to my clients.  But maybe that is because pending sales are not disclosed in my MLS.  However, if I for some reason became aware of a pending comparable sale, shouldn't I disclose that to my clients?  Isn't this agency 101?

I completely disagree with your assertion that if they didn't want to pay $1.2M for the house they should have offered less.  Do you see our roles as buyer's agents simply as order takers?  Do you not provide your clients information sufficient to make an informed decision?  Isn't that your job as a buyer's agent?  Why would someone want to hire you if you are simply going to ask them how much they want to pay for a home?  I personally provide my clients with as much information as possible so that they can make an informed decision when settling on an offering price.  This includes comparable sales, expired/withdrawn listings, listing history, days on market, tax assessment information, data regarding recent market trends, etc.  This is how I can add value to transaction for my buyers.  As far as I'm concernced, if a buyer's agent isn't providing this information, the buyers may as well work with the listing agent. 

Robert,

Like you, it would be nice if the Ummels did turn out to be nut jobs, and if the Realtor was completely vindicated.  We will have to wait and see how the facts play out.

Feb 04, 2008 02:30 AM
Sharon Harris
Keller Williams Keystone Realty - Hanover, PA
Realtor

Yes the Realtor seems a bit greedy. I am sure he did have his interest in mind when he sold the home for the inflated price.

Now then if I am buying a property and others on the same street are for sale I sure as hell would ask about them. I would do my homework and ask to see others or at least ask for comps. Buyers need to be smart too. Would these people walk onto a car and just point to a car and say I want that one? Maybe but i doubt it. They are making a Hugh purchase buying this home. They seem to have money and must live well. Do you not think they could exercise some money management? I am sure this is not how they conduct there business.

 

Now as I said this agent seems like he was a bit greedy. But did these people just not ask questions? They should have asked the questions and he should have been a whole lot better at the client first pay check second idea..

 

 

 

Feb 05, 2008 09:25 AM
Chuck Willman UtahHomes.me
Utah Homes - Alpine, UT
Utah Homes
I had forgotten about this case... have you heard anything new?
Mar 28, 2008 09:30 AM
Stefan Scholl
Buyer's Broker of Northern Michigan, LLC - Petoskey, MI
Northern Michigan Real Estate
Interesting you should ask, Chuck.  A couple of days I did some searching and could not find anything. . .  Very strange that this case appears to have entirely disappeared from the radar screen.
Mar 30, 2008 10:14 AM
Steve Hall
RE/MAX United - San Marcos, CA
Make the Call to Hankins and Hall

I am new in ActiveRain so I hope this works.  If the link does not send you to the article, simply copy and paste to your browser.

The jurors deliberated for 2 hours and found the the agent. 

"greed" "burn in court" "scum"  Extremely unfair comments!

I wonder how many would like their name disparaged on national TV.    

http://www.nctimes.com/articles/2008/04/11/business/589b9e7009198e1c88257427006b6fd3.txt

Aug 18, 2008 02:30 PM
Richard Rosa
Buyers Brokers Only, LLC - Haverhill, MA
Exclusive Buyer Agent

Does not matter how long you have been doing this, valuing a home is more an art than a science, so this case is a little scary. Hopefully the outcome is very fact specific.

Nov 28, 2008 01:52 PM
Dana Hollish Hill
Hollish Hill Group, JPAR Stellar Living - Bethesda, MD
REALTOR * Broker * Coach

I think it's important to read the whole story that you link to in the beginning of your post. There are some questions that are still unanswered. 

One of the homes (comps) settled on the same day as the one the buyers purchased. I'm not sure how that sales price compares to its list price, but that would be interesting info to know. 

Did the buyer's have an appraisal contingency? 

The buyers had dismissed one agent and cancelled two other transacations before selecting Mr. Little. IF they were having trouble before, why would they select an agent who works as a loan originator to assist them?

Sep 24, 2013 04:42 AM