01.28.08
Lawsuit for Fallen Real Estate Value - Are you protected?
The New York Times reported on January 22, 2008 that a buyer was suing her buyer agent because she believes that she paid too much for her house. She blames the agent for not disclosing information about similar homes in the neighborhood selling for less. Well, I think MOST people who bought last year feel that way.
Court question is, did the Agent violate the duty of loyalty by putting his own interests (i.e. commission) first? Okay - lets expand that concept to other real estate professionals in similar scenarios -
• What are the obligations of Agents/ Appraisers/ Loan companies and other real estate professionals when buyers are buying in a volatile market where home prices are dropping and the Buyer says we helped him pay too much?
• On the other hand, what are the obligations of Agents/ Appraisers/ Loan companies, etc. when Sellers are selling in a market where home prices are increasing and the Seller thinks they didn’t get paid enough?
• Is “reasonable value” a fact? After all, what is fact when it comes to price negotiation in progress for reasonable value, aka fair market value when we have been taught that fmv is the price determined between a willing buyer and a willing seller?
• How much information in terms of comparables and appraisal is enough for buyers to make intelligent choices? How much research should a buyer do on his or her own? Does that research amount and quality differ for sophisticated vs. non-sophisticated buyers? Are real estate professionals supposed to assume the role of appraisers? Then again, is value strictly sale price, or does it have to do with a buyers lifestyle and choices of neighborhood, etc? Being near a lake, a golf course, a particular school, on a cul de sac…
So, when someone says they paid “too much” for a property and complains later on, is that really the Professional’s fault? If so, it would appear there is new liability for a real estate professional. If the courts feel the professional did not fulfill his fiduciary duties of loyalty, disclosure and reasonable care and diligence, just how much liability does the professional (and the company he/she works for) have? And, once again, do we as professionals have enough errors and omission insurance to pay for these supposed errors?
I believe most of us believe the decision to buy was made by the buyers themselves, who voluntarily executed the Purchase Agreement. Buyers are certainly aware of the market conditions at the time of buying a new home, aren’t they? However, in light of this case, what could a careful real estate professional do to protect himself? Certainly disclose anything and everythin that may impact the offer price (Comparables sales). But, is that enough? The good old USA is a litigious society, and perhaps it is NOT redundant to have yet another disclaimer reiterating that “fair market value is the sale price between a willing buyer and a willing seller, and that that the Agent/ Appraiser,… etc. has no control and takes no responsibility for future values.”
The industry will be watching this case carefully because there are plenty of disgruntled homeowners out there who feel that they never would have bought the property if they had “good professional representation.”