One more thing "your realtor won't tell you".

One more thing "your realtor won't tell you".

The other day I was talking to a parent of buyers I'm working with, and the conversation turned to the lawsuit she'd filed against the seller, the listing agent, the selling agent and the brokerage both agents work for, of the dream home she'd bought in a quaint ultra-expensive Bay Area community.

The home, which has wonderful views, is built on a cliff overlooking the Bay. One rainy morning she's in her kitchen having coffee, looks out the window and realizes that part of her lot is missing—it's slid down the cliff during the night. That was four-and-a-half years ago, three law offices and over a dozen attorneys ago, $2.5M ago and much heartache ago.

As I listened to her pathetic story, it dawned on me that it was no coincidence she was down to her last nickel, she was in default on her mortgage, her battery of attorneys had taken years to get little or no results, and the brokerage's attorney was stonewalling. Everyone involved in a professional capacity in this mess had apparently looked at how much she'd paid for the home, figured her pockets were plenty deep (but not nearly as deep as the Errors & Omissions carrier paying the attorneys defending the brokerage) and said, in so many words, "Let's string this along as far as it'll go".

"Yes, Mrs. X, I think you have an excellent case."

"No, I never said my clients were willing to settle. You haven't proved a thing."

This snapshot of civil litigation in action reminded me of a recent article in my local throw-away, exposing all real estate agents as scoundrels. Normally this wouldn't raise too many eyebrows, except for two curious facts:

the article was, I repeat, in my local throw-away, a publication that, for the good of all concerned, including the reputation of its reporters and the edification of its readers, had never previously published anything along the lines of "Ten Things Your Realtor Won't Tell You", and
the article was written by a local real estate agent, who we'll call "J.D.". In fact, J.D. isn't just an agent. No, he's the broker-owner of a small old-time brokerage. He's also—and I'm not sure, but this might have something to do with it—a real estate attorney.

What struck me about J.D.'s article, written ostensibly to explain the pros and cons of "alternative dispute resolution" (or ADR or, in other words, settling your differences outside the courtroom) was its blanket condemnation of the real estate industry—yes, that's right, J.D.'s fellow agents and brokers. Even more curious, the article could be construed as a blanket condemnation of the nine agents who currently hang their licenses with J.D., and even of broker J.D. himself.

For example, I learned that "real estate brokers encourage buyers and sellers to agree to [alternative dispute resolution] clauses". Such clauses have "become a standard spot where the agent/broker tells you to initial, just because it is there". J.D. claims the real estate purchase contract offers consumers the option of alternative dispute resolution, not because consumers want it or might benefit from it, but because ADR is "driven by the real estate forms, i.e., the real estate industry". Here J.D. deftly uses the industry critic's favorite (and least plausible) form of attack, conspiracy theory.

And under "what your agent doesn't want you to know", a phrase buffed to a high luster by legions of agent bashers—and one that probably gives the average agent's capacity for calculated mayhem way too much credit—J.D. tells you that agents gain a "huge advantage" by leaving themselves "out of the alternative dispute resolution loop that they have encouraged their clients to participate in", since the purchase contract has no provision for agents to agree to ADR. "Obviously, being able to make the choice of whether or not to participate with a knowledge of what the dispute is about is a huge, I repeat, huge advantage. Since your real estate agents are fiduciaries, don't you think they should tell you about this huge advantage that they are building into the contract to protect themselves from liability?"

My response to this was a well-reasoned huh? because I sure wish J.D. would tell me what "huge" and "obvious" "advantage" he's talking about. As far as I know, not having a provision for ADR between broker and client in the purchase contract has never kept a brokerage or agent from getting dragged into a dispute between buyer and seller, whether the dispute is handled through mediation and, eventually, arbitration or court. And it's certainly news to me, and to a whole lot of plaintiff's attorneys, that the real estate industry has insulated itself from lawsuits. Then why do I pay an arm and a leg for my Errors & Omissions insurance?

I also wonder why, if the real estate industry avoids ADR like the plague, it makes mediation standard and arbitration elective in both the listing agreement, the standard agreement between seller and broker, and the buyer-broker agreement, the formalized agreement between buyer and broker. Yes, that's right, ADR is in both the formal agreement between brokerage and seller and between brokerage and buyer. And is the only reason the purchase contract doesn't offer ADR between brokerage and client because the purchase contract is solely an agreement between buyer and seller, with the brokerage not a party? Yes, I think so. Anyone know a good real estate attorney we can ask?

I also wonder how J.D. knows that every agent sells his or her client a bill of goods every time they reach the arbitration section of the purchase contract. Has he sat in on the meeting of every agent and client as they write their offer? Is there a study or poll indicating that clients are coerced by their agents into electing arbitration? If there is, he doesn't mention it. Maybe it's just one of those things "everyone knows", the kind of "my gut tells me" rumor and innuendo that underlies so much uninformed agent-bashing.

But how can J.D. be uninformed about real estate brokers? He's a broker.

Yes, but he's also an attorney. So let's look at ADR from the attorney's point of view. Maybe the reason so many clients sign the arbitration clause is not because they've been tricked or bludgeoned into it but because the idea of a quicker, less-expensive resolution to disputes—one that may not involve an attorney—appeals to many consumers.

Perhaps the slant of J.D.'s "expose" makes more sense if we remind ourselves that he is, according to the brief bio at the end of his article, "a real estate attorney", and that he "has served as an expert witness". And, as J.D. says, "one of the arguments for mediation and arbitration is that [it] is a means of saving the costs of normal litigation". Costs? You mean, like, attorney costs? You mean, like, expert witness costs?

However, the bio also seems to exculpate J.D., since it touts him as a "mediator" and "on the judicial arbitration panel for Santa Clara County Superior Court". But then we recall that J.D. recommends that, even in mediation, "both parties should be represented by an attorney", even though he admits it's not required, because "it still is a process governed by laws and procedures that would overwhelm 99 percent of buyers and sellers".

Sounds fine, until you realize that even an attorney would probably tell you that as soon as both sides, angry and out for blood, get themselves lawyered up, the dispute turns professional-grade and takes on a life of its own that may not stop until tens, hundreds of thousands or even millions of dollars in legal fees later. From what I can tell, mediation is a screening tool designed to give hotheads, bullies and buyers with a bad case of remorse—anyone who needs to cool off—one last chance to keep themselves from clogging the court system for years while paying dearly for the privilege. Anyone who's still convinced they have a legitimate complaint gets to move on to the next step, whether it's arbitration or litigation. Having attorneys present at the very inception of the process seems like a great way to take the "alternative" out of alternative dispute resolution. It's like having an agent sit at the kitchen table while Ma and Pa ask Sonny if he'd like any help with his down payment. We're pretty sure that, if the agent has any input, Sonny's going to say "when do we start looking at homes?".

So where might J.D. be coming from? Let's look at J.D. and his fellow attorneys from the same jaundiced point of view that J.D. seems to view the real estate industry, an industry that, by the way, he's been part and parcel of for "more than 20 years" according to his bio. Let's borrow a page from J.D.'s playbook and look at "what your attorney doesn't want you to know" about ADR. Yes, let's look at alternative dispute resolution from the attorney's point of view.

That view may be remarkably similar to the agent's view of what might be called "alternative real estate selling": in other words, selling FSBO (for sale by owner) or through a limited-service broker. No, says the agent, you don't want to go it alone or with minimal agent support, because the selling process has become a legal minefield and quagmire that, to paraphrase J.D., is "governed by laws and procedures that would overwhelm 99 percent of buyers and sellers". In this case it happens to be true, but to the cynic it smacks of self-interest, "scare tactics" that make it easy for him to argue that the agent wants you to approach selling with fear and trepidation not because you should but because it guarantees the agent a commission check. The same cynic might argue that the attorney wants you to approach ADR with fear and trepidation, not because you should but because it guarantees the attorney lots of checks.

What's always struck me about J.D. over the years is that he comes across far more as an attorney than agent. I had a transaction with him years ago, and whenever he spoke it wasn't in the hearty or cajoling or frank or snippy or belligerent tones of the agent on the other end of a deal but in the distant, careful voice of the attorney. I wondered then if this was just the usual lawyerly heavy menace, the old mailed-fist-in-the-velvet-glove routine the boys like to cultivate. On brokers tour he greets you, not with the bonhomie, real or feigned, of the agent, but with the barely-concealed cynicism of opposing counsel. It's a bit disconcerting, perhaps intentionally, and I've always wondered if it indicated where J.D.'s head really is.

Maybe he's come to the same conclusion.

As an example of the Ten-Things-Your-Agent-Won't-Tell-You genre, there's nothing new or unusual here, except the timing. Because twenty years is a long, long time for an honest man to work in a dirty industry.