"114 Pounds of Absolute Perserverance"

What do you make of this: The New York Times reports today that a San Diego couple, the Ummels, is suing their real estate agent for allegedly failing to protect them from overpaying for a $1.2 million Carlsbad home in August 2005.

The lead plaintiff is a 60-year-old university fundraiser who describes herself as “114 pounds of absolute perseverance.” She spent the past year picketing the agent’s office. With shoot-from-the-hip media-savvy, her former agent says “the lady’s a nut job.”

And of course, the suit is just the kind that drives conservatives nuts, too. Why can’t people take responsibility for their decisions?

But wait. The only problem with blaming the buyers for overpaying is that the rationale for traditional buyer agents’ fees has been to protect buyers from overpaying. As the Times observes, the Ummels’ lawsuit is new in part because the buyer agent is fairly new, too — in the last downturn, agents represented only sellers and so buyers had only themselves to blame.

This time around, no one expects a buyer agent to have a crystal ball. The suit isn’t charging that Ms. Ummel’s agent should have foreseen a future downturn, only that he failed to guide his clients on current market conditions. Two nearly identical houses in the same, nearly new development sold at almost the exact same time for $105,000 and $175,000 less.

And even then, no one expects a real estate agent to be an appraiser either: the plaintiffs’ beef is that the agent withheld an independent appraisal they had requested, which would have notified them before their own closing of at least one of the nearby sales. Since the Ummels had already scotched two deals, it seems reasonable to think that the appraisal would have scotched a third.

Now we could argue endlessly that price comparisons are odoriferous and no two homes are the same, even in Southern California, but that misses the point. For the purposes of this discussion let’s just take a flying leap and assume that the Ummels overpaid, so we can focus on the interesting, difficult question of whether an agent can ever be liable for his clients’ overpaying.

Once a buyer’s agent begins making representations about price, it seems possible for him to make negligent representations about price. This doesn’t mean an agent can’t make representations about price, and can’t be wrong when he does. He just can’t be negligently wrong, by withholding material information that a reasonable person would want to see. If the Ummels’ agent did that, he should pay for it.

Of course, since we have no idea from our seat in the peanut gallery what really happened between Ms. Ummel and her agent, the whole debate is academic. The only undeniable fact is that the lawsuit that Ms. Ummel is pursuing, at greater cost than she is likely to recoup, must be like all other forms of revenge, a hopeless attempt to regain what she lost: her sense of trust and self-reliance.

In this respect, the case just illustrates the perils to both parties when a client outsources her brain to a real estate agent, or a stock-broker, or anyone else trying to sell something. It is why we dislike the paternalistic mindset occasionally used to justify brokerage fees, in which talk of “hand holding” is not seen as condescending, fears about “the single biggest purchase in your life” are stoked, and agent attempts to be persuasive during tense, personal moments are seen as heroic.

That’s messed up. It seems like most clients would prefer a partnership, carefully constructed to avoid conflicts of interest, in which agents provide information, professional judgment and support so as to empower the client to make a few big decisions: Is this the house you want? Does it have anything wrong with it that you didn’t notice? Could you get it (or one like it) for less money?

It is still possible — though we think less likely — that the Ummels could have taken this approach and still paid as much as they did for their house, but somehow I doubt Ms. Ummel would have wasted a year of her life afterwards feeling, rightly or wrongly, like a sucker.

(And no, we don’t think the behavior the Ummels attributed to their agent is at all typical, and we aren’t trying to make any claims against the industry beyond arguing for a different approach to customer service.)

Discussion

  • Kelly

    I think you are forgetting, or neglecting, to bring up the fact that the real estate agent also acted as their mortgage broker…

    I think that is a pretty big piece in your lynching here of the traditional agent.

    Grow up Glenn!

  • http://blog.redfin.com/blog/author/glenn%20kelman Glenn Kelman

    We went out of our way to note that Ms. Ummel’s charges may not be true, and that if they were, the agent in question would not be representative of the industry. And of course in writing this, we were acutely conscious that Redfin is a brokerage, and that like anyone else, we make mistakes for which we could be sued.

    My main argument is that there are two ways to be a real estate agent: one is to be like the clients’ father, holding their hand and maintaining that you know best. And the other way is to be like their partner, providing information that empowers the client to make her own decision.

    Is saying that we prefer one approach over another, far less common one, an attack on the traditional agent? Which approach do you prefer?

    And yes, I know that the real estate agent in question was also a mortgage broker, increasing the fees he earned from the sale and entailing different fiduciary responsibilities. But I don’t understand how that created a conflict of interest any different than the real estate commission, or why he failed as a mortgage broker (since the Ummels have never argued that they couldn’t afford the loan).

    If you think this is an attack on the traditional agent, what kind of discussion is possible?

  • http://www.homesalessandiego.com/ Bob in San Diego

    >lynching of the traditional agent

    Give me a break! The agent didn’t provide comps to the buyer when writing the offer. It is called fiduciary duty. This is California, where agent = fiduciary unless specifically stated in writing otherwise.

  • hoish

    Thanks for this post. I’ve been wondering myself whether the relationship between a buyer and the buyer’s agent is legally considered to be an agency relationship, where the agent has a fiduciary duty to act in the best interest of his or her client. Bob’s comment suggests so, which would make Ms. Ummel’s case stronger.

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  • http://www.northcountyluxuryhomes.com Carlsbad Agent

    First, I would like to clear up one of the statements you made above…
    “Two nearly identical houses in the same, nearly new development sold at almost the exact same time for $105,000 and $175,000 less”

    The buyers agent had or should have had knowledge of the Sale price of only one of these homes. The home that sold for $105k less then the Ummel’s home. The second home closed escrow on the Same Day as the Ummel’s home and was not public knowledge until that home was recorded and the agent updated the MLS.

    Yes, the buyers agent had a responsibility to inform his buyers of all the comps. What none of the articles mention is that there were and are many other comps that justify the price they paid.

    A final note is that the Ummels home was marketed as having a view and the agent mentions that they were interested in having a private back yard. It is typical in that area of Aviara for homes with Views to sell for $100,000 or More then similar models.

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  • V.M.

    The fact that the buyer broker worked with the appraiser and kept the comparables hidden until after closing is not only unethical, but also could be deemed fraudulent. If Ummel had decided to cancel the contract before closing based on “fraud” or negligence, the seller probably would have tried to keep her to the contract and Ummel would still be in litigation…
    I can’t stand the amount of people who have jumped to blame Ms. Ummel and her husband for not doing their “homework.” The agent has a duty to disclose things that are material to the house and that affect its value. Seems like this agent did not do that until the house was purchased. Check out this article:
    http://www.bnglawyers.com/CM/Custom/cfa.pdf
    Has anyone heard if the judge has heard her case?

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  • http://www.atlantaapartmentstv.com Atlanta apartment

    I don’t agree with it being the fault of the buyer for not doing their homework. When you elect a Buyers agent to represent you, you should expect the agent to perform their fiduciary duty to represent your best interests in the transaction. This is the same way that you would with a doctor or lawyer. This is why they are paid fees.

    However, since the buyers agent is only paid a commission if a purchase is made, there is a conflict of interests in the buyer-agent relationship. Therefore if the client is not in a financial position to purchase a property, should the buyers agent advise them of this and forgo the commission, which is their source of income from the relationship. It would be equivalent to a doctor working 3 weeks on a patient and only getting paid if the patient survived. This conflict needs to be addressed.

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  • http://www.lvrealty.net Charles in Las Vegas

    Well this is all a moot point now that the Ummels have lost their lawsuit. Oh, and their house has gone up in value since they bought it.

  • http://www.housebeautifulnj.com/summit-nj-real-estate.php Summit

    Oh, and their house has gone up in value since they bought it.

    Well thats pretty funny. Moot point indeed!

  • http://buyersagentannarbor.com Jon Boyd

    One thing I hope we can all agree on is that it is worthwhile for a buyer to understand what kind of agent they are getting and what services the agent offers.

    This seems to have been missing in this transaction.

    Jon Boyd
    Exclusive Buyer’s Broker
    The Home Buyer’s Agent of Ann Arbor, Inc.

  • http://www.lvvr.com Las Vegas real estate

    Everyones suing everyone these days. Sad.

  • http://san-diego-houses.com San Diego Real Estate

    whdjwjjtr

  • http://www.nashvilletnhomesonline.com/ Josh

    Even in states that have adopted the buyer beware type of policy, this agent in my opinion should be found negligent as that is a considerable spread on the homes and if the buyer's agent didn't have knowledge of the sales they should have as isn't that their job.