Suing your real estate agent

by on January 23, 2008 at 6:01 am in Law | Permalink

Ms. Ummel said in her deposition that Mr. Little had told them “many times that it was a very good buy.”

Here is the story, which should have pushed the point that the real estate agent usually works for the seller.  In another context, if an agent of the mortgage lender says: "Just put down an income of $150,000," even most of the so-called "stupid people" know they are engaging in some kind of fraud.  In reality it is complicity with fraud and a violation of federal law, and yes this is a federal law that should be a federal law.

A society that so blurs the ethic of individual responsibility is a society in trouble.  My notion of individual responsibility does not mean: "Sorry, it is just that you die for your mistake," so there is no need to knock down that straw man.  But a good notion of individual responsibility might start with: "We’re not going to label every "little guy" a victim, even when it supports our political narrative to do so."

Student January 23, 2008 at 7:16 am

Tyler,

The article actually *does* say that the agent legally represents the seller. In the first half of the piece no less!

Should the journalist say things twice for all the “stupid” people that don’t read past the first paragraph?

KipEsquire January 23, 2008 at 7:27 am

The law is simple in this regard: to be a victim of fraud, one must rely on the misrepresentation by the defendant, AND the reliance must be objectively reasonable. Believing assurances that “it’s a very good buy” doesn’t qualify as “reasonable” in real estate any more than it would on a used car lot or in an informercial.

See also “puffing” (which perhaps surprisingly is a legal term of art) and (in the case of predatory borrowers) the clean hands doctrine.

Finnsense January 23, 2008 at 7:45 am

On the one hand, the weak should be protected even if it seems patronising to ordinary people. There are some people in the world who really do have trouble navigating it in any sort of competent way.

On the other hand, if you don’t know the estate agent is unreliable you shouldn’t be able to take a loan.

John Pertz January 23, 2008 at 8:06 am

I cant see our world becoming a better place by giving buyers the ability to sue real estate agents. It is one of those issues that would end up blowing up in our faces if it came to pass.

Daniel January 23, 2008 at 8:26 am

My understanding is that a buyer’s agent like Mr. Little legally represents the buyer. Where do you see that he represents the seller?

The only mention I see of seller is “For decades, residential transactions almost always involved brokers who, whatever assistance they gave the buyer, legally represented only the seller.” which is talking about the past.

Vincent Clement January 23, 2008 at 8:59 am

Who believes everything a real estate agent says?

Russell L. Carter January 23, 2008 at 9:09 am

“But a good notion of individual responsibility might start with: “We’re not going to label every “little guy” a victim, even when it supports our political narrative to do so.”

The thing that annoys is not that you iteratively point out that the original home buyer has part of the responsibility for the current large scale financial disaster, it is that you *never* *ever* *ever* assign any blame to the corporate entities that have botched up the other end of the transactional trail.

So you come off looking like a banal corporate shill. Certainly that is how your NYT pieces read. FWIW, I’d be happy if every one of the buyers who misrepresented their income were prosecuted. As you point out, that would be a lot. Might not be popular, me thinks. But even if you were to successfully prosecute all of those little guys, you still have the problem that systematically elevating fundamentally CCC crap to AAA is unsound. If the ratings and insurance entities had actually been doing the jobs they claimed to have been doing, then there would be no financial disaster.

People who want to understand the problem at a fundamental level need to be reading Calculated Risk.

Tyler Cowen January 23, 2008 at 9:24 am

Russell, there are plenty of other people covering the corporate side and it simply isn’t newsworthy for a column that comes out every month. You are wrong that I do not admit massive corporate fraud, see for instance my comment over at Barry Ritholz’s blog in response to his posting. My original NYT column also says that the lenders are to blame as well. You are overreacting to seeing the traditional narrative being disrupted.

mike January 23, 2008 at 10:05 am

The ugly fact is that most “buyer’s broker” agreements are really designed only to protect the broker and ensure that the broker gets paid no matter what the buyer ultimately purchases or where. There is certainly a case to be made that, if the buyer is assuming that type of obligation to the agent, that the agent should have a fiduciary responsibility to the buyer.

The only question that I see here is “does being bound as a buyer’s agent require a written, as opposed to an implied-in-fact, contract?” Since there is no commitment on the part of the buyer in this situation, I don’t see how the agent can be held liable. The buyer screwed up.

OTOH … if there was a buyer’s broker agreement, I would say sue him until his ears bleed.

M1EK January 23, 2008 at 10:55 am

That comment thread was even more aggressive in calling out your shill for what it was, TC. Your choice to use the modifier “predatory” in front of “borrowing” was particularly ill-suited, as was the hand-wave that “of course, lenders were bad too”.

Not Sold.

JustJeff January 23, 2008 at 11:54 am

When I worked in California real estate (1985-1995) California law defined both “seller” and “buyer” agents as working for the seller. Their agency and responsibility was to the seller. There were many agents who worked exclusively with buyers and called themselves buyers agents, but as far as the state and the law were concerned, they worked for the seller.

A real estate agent could be reprimanded or even lose his/her license for actions that weren’t in the financial interest of the seller, regardless of who they worked with.

Seeing as the agent was paid by the seller, not the buyer, this agency requirement made sense.

I don’t know whether or not the law has changed in the last 12 years, but I don’t see any particular reason why it would have.

Finnsense January 23, 2008 at 1:15 pm

“This is why I advocate a “big boy” class of citizenship whereby those of legal age can attest that they’re “big boys” and remove themselves from jurisdiction of all laws intended to protect them from themselves.”

While I think it right that too much regulation is stifling, it is quite hard to be overly concerned by the possibility of a world in which real estate agents have to take a shot at the truth rather than simply making stuff up.

scott January 23, 2008 at 2:20 pm

Talk about a potential Conflict of Interest! The article says the Realtor was also the Mortgage Broker. “Mr. Little also worked as a mortgage broker. The Ummels say he encouraged them to get their loan through him. Mr. Little ordered an appraisal of the house but did not respond to the couple’s requests to see it, the suit charges.” I wonder what that appraisal came in at??? Being in Real Estate for 22 years, I’m pretty sure that might be the overriding factor as to responsibility and in fact may show that Mortgage Fraud was committed as well as Ethics violations. I would normally side with the Realtor, but this in fact smacks of misdeeds and I’ll be very intersted in the outcome. Also in how the outcome is presented by the Malinformed Media.

8 January 23, 2008 at 3:11 pm

The fact that they made the purchase indicates they agreed it was a “good buy”—especially because they didn’t have to move. If they were in a situation where they had to move into a home and the broker exploited that fact, maybe they’d have an argument.

I also don’t see how the advice is different from a stock broker who told their client that Yahoo! was a good buy at $150 in 2000. Certainly bad advice, but then the only good advice was to buy nothing, not a “cheaper” Internet company.

8 January 23, 2008 at 4:55 pm

How can you differentiate between unethical and stupid?

meter January 23, 2008 at 5:15 pm

The more I think about this, the more it pisses me off.

Libertarians always argue that we need a free market and less regulation. The grand point is continually hammered home that if there are contract disputes in this wonderful utopia, the courts can settle them. And now you’re begrudging someone from doing just that.

What a load of shite.

Bernard Yomtov January 23, 2008 at 5:58 pm

How can you differentiate between unethical and stupid?

No need. If you’re stupid – if you don’t know how to tell what is or is not a reasonable price for a house – it is unethical to hold yourself out as an expert on the residential real estate market, and to try to make a living by claiming to provide expert advice to buyers (or sellers).

bp January 23, 2008 at 11:59 pm

Isn’t the allegation that the agent did not disclose material information which is a lot more specific than complaining about “bad advice”. There is also the question of professional ethics, I don’t know what the original appraisal was, but the agents current appraisal of $1,150,000 to $1.2 million in the summer of 2005 is on the low end of what they actually paid. That doesn’t seem like a good value. I also think bjk has a good point about collusion.

Zigurrat January 24, 2008 at 10:40 pm

I think this is a situation where good cases make bad law. If the agent was specifically a buyers agent, had been asked for an opinion on value and gave it, failed to provide requested information (the appraisal) — it seems like the agent was negligent.

I don’t know the exact duties of a buyer’s agent, but it seems like agents want it both ways. They can’t toss in the word “professional” enough. Then they want to claim they were mere salesmen and everyone should expect some puffery as part of a sales pitch.

I don’t see much good coming out of this, since in the future, additional disclosure and releases will take them off the hook. All that they will need to do is comply with the minimum standards and document. No one reads disclosures anyway.

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AlfredHitch June 30, 2010 at 9:31 am

This may be the case of many real estate agents that tend to bend the rules but I’ve worked with Dallas real estate and they were true professionals. I was satisfied with their advices and I really did make a good buy.

Francis Cooper October 31, 2010 at 7:45 am

Scams happen all the time and the real estate ones are the most expensive. But some people still manage to stay away from them when buying manufactured homes or other estates. That is because they don’t take for granted everything their real estate agent tells them. They ask for second and third opinions before putting down a dime.

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