Your Home Value Drops … Sue Your Real Estate Agent

It was reported on January 22, 2008, that a home buyer is suing her agent because she believes she overpaid for her home.  The buyer believes her agent did not disclose that similar homes in the neighborhood were selling for less than what she paid.  At first blush, such a case seems frivolous to many because the ultimate decision to buy and the price to offer is ultimately the buyer’s decision.  Plus, no two homes are exactly alike.  Even if the homes are close to each other, they may vary in decorating upgrades and maintenance.  One home may face a green belt, another may be on a cul-de-sac and a third may have a panoramic view. All these factors can make for unique value variances within the same neighborhood.

So is this the case of a buyer trying to recoup some of her home value loss by hoping for a quick settlement with her agent?  Perhaps there is more to this case.  Residential real estate is all about sales and marketing. When is the last time you heard a real estate agent say,” It may not be a good time to buy real estate?”  No, it's almost always “A great time to buy real estate, because xxxxxx.”  Many in the real estate profession have an unshakable belief that home values can only continue to escalate.  While sales slowdown and prices stagnate, should this not always be considered buyer opportunities?  After all, in the long run, home values always appreciate.

Obviously, these statements are generalities, and even if a home’s appreciation is considered sacrosanct in the long run, one must then define what is long run.  I would estimate that the majority of buyers who bought homes or condominiums in San Diego with a 10% or less down payment in 2006 and early 2007, now have mortgage balances greater than the net sales value of their properties.  So what is the long run for such a buyer?  Will this year, 2008, bring a turnaround in housing values?  When December comes around will many San Diego homeowners have an even larger loss in value than they do today?

So back to our agent lawsuit, is it legitimate? The answer would be hard to ascertain without additional details specific to the case itself.  If we assume the agent made statements such as “this home is a good buy compared to what similar models sold for recently (or last year)” or if he said, “it's a good time to buy, you're saving thousands over what this property sold for just a year or two ago,” this case should be dismissed as frivolous.  On the other hand, if the agent knew that similar homes in the neighborhood were up for sale, or sold, for less than the subject property and did not disclose this to the buyer, then this case certainly has grounds to move forward.

In the agent's defense, a bank appraisal of the home's value is almost always standard operating procedure, and in most purchase contracts, it is specified if the appraisal comes in at less than the negotiated purchase price, both the buyer and seller do not have to move forward with the transaction.  In other words, it's time for renegotiation.  Either the seller reduces their price to the banks appraisal, or the buyer increases the down payment to cover the appraisal difference. So, if an appraisal was involved in this case, this one factor alone could be proof that at the time of purchase, a third party to the transaction, the lender, considered this home to have the value established at the offered to purchase price.

In California, where over disclosure is the rule in real estate transactions, it would be unthinkable for a buyer's agent to not fully disclose all the comparable neighborhood sales data to their principal prior to the structuring of an offer to purchase.  The simplistic rule here for all buyers’ agents should be to always disclose pertinent sales data to their clients as well as condition sales on an bank appraisal coming in at the full purchase price of the property.

With three decades of real estate sales transactions, I always have my own opinions on which way the local real estate market is heading.  When questioned by potential buyers, I let them know that the only thing I can guarantee is to endeavor to use all my experience to get them the best possible price for the current market conditions. Where that price or value will be 3 to 6 months, or a year or two down the line, is anybody's guess.  There are no guarantees in life and risk is inherent in all financial decisions.                          San Diego real estate agents