This story was on the Realtor.org website and was a feature on the TODAY show this morning. A woman in California is suing her buyer’s agent for fraud. She claims that he hid the recorded sales of comparable properties that did not support the sales price of the home she bought in 2005. I am curious to know the details and hear the agent’s side of the story. It is very possible that he could have not disclosed all the comps and skewed the data to support a higher offer price, but it seems unlikely. The woman was interviewed on the TODAY show this morning and she said that she believes that she paid between 150,000 and 175,000 more for the property than it was worth. If the agent encouraged the buyers to pay that much more, it would have earned him approximately another $5,000. It doesn’t seem like a 26-year veteran agent accustomed to earning $30,000 commissions would jeopardize his reputation for such a small sum of money. Still….
I have a lot questions.
How many houses did the couple look at before they made an offer on this particular property?
If they looked at only 3 other properties in the area with similar amenities they should have had some idea of price. Did they not look at anything else? And why did they choose that particular home over others (I am assuming that they did tour other homes and chose this one). If they were willing to pay 1.2 million for this particularly home, it must have stood out among the others for some reason.
The comps that were allegedly hidden, what condition were they in?
Even in a subdivision of track homes, built in the same year by the same contractors, prices can vary drastically. Generally builders offer a base product and during the selection period people can easily increase the base cost by $50,000. The Park East Tower in the CWE offers a good example. The floor plans are identical as you move up the building. In this CMA (comparative market analysis) unit numbers ending in 05 are exactly the same floor plan with the same square footage and number of beds and baths. What differs are the appliances, counter tops, cabinets, lighting fixtures, etc. Click here and notice the difference in prices. Some of the price differences can be attributed to placement in the building. Typically units on the higher floors sell for more money. But in this case whoever bought on the 13th floor paid more than the person who bought on the 16th floor. That difference in price is due to the upgrades inside the unit. The same is probably true of those properties that were 175K less. Even though those homes were on the same street with the same number of beds and baths, the interiors were probably drastically different.
Was there an agent representing the seller? If so what comps did that agent use to help set the price?
Again I am only speculating, but I think there was probably another agent involved in the transaction–the agent who represented the seller. In that case, the agent representing the seller usually advises the seller on the list price. The seller makes the ultimate decision on what price they want to ask. Generally that price is set after the seller and the agent review the comparable properties that have sold in the area within the last 6 months. In addition to reviewing the SOLD comps, the seller’s agent and the seller tour other ACTIVE properties to scope out the competition and see how the subject house compares. The gist of this is that listing prices rarely fall out of the sky. Listing prices are based on comps. A listing price doesn’t represent the actual VALUE, it is just a reflection of what the seller feels his home worth based on the data from other properties that have sold in the neighborhood. VALUE is not established until the seller and buyer negotiate it. VALUE is established when someone agrees to pay that amount.
Which brings me to the questions of liability.
The agent was the expert in the situation. He was the one with the access to all the information which he should have shared with them. Did he hide the comps with lower prices or did he not include them because they weren’t truly comps? In either case, the client makes the decision. The client signs the contract stating they he/she is willing and able to pay the offer price. The client should be directing the agent’s actions and not the other way around. It is possible that the agent knowingly misled the client and directed her to pay more for the property but without all the information it is difficult to make a judgment.
What is my response when clients ask me how much they should offer on a particular home?
Not every buyer asks me what they should offer. But many do, and I rarely answer the question directly. I joke at first and tell them that it doesn’t matter what I would offer since I won’t ever pay a mortgage payment for them. Then we review the comps and we talk about the other houses that we have seen. I ask them why they prefer this particular house to the house around the corner that we saw earlier. We talk about the similarities and the differences and often attach a value to those similarities and differences. By the time my clients decide they have found the home that they want, they have usually seen 15 (or more, rarely less) other homes. Sometimes we go back for a second look at the homes that have made their top three. But I try to avoid telling them exactly what to offer. It all depends though. In an ideal situation I advise my clients to make a good enough offer to get a counter-offer. In other situations, if I know we are competing with other ready buyers, I advise my clients to make their best offer. I encourage my clients to make their own decisions.
I will end with one more question…Likely the client deferred to the agent and asked what she should offer. In that case, if the agent told her to offer 1.2 million and she was willing to pay 1.2 million to buy the house of her choosing, is the agent liable if the property can only re-sell for 1 million? What is the client’s responsibility?