Who ya gonna blame?
Pumped-up trilogy, part 2: Scumbag or scapegoat?
Let's say your home is worth less than you paid for it back in July 2005, something often, but not always, true in this area. Whose fault is it? Please select the correct answer:
1. It's no one's fault. All parties to the transaction acted responsibly. Markets go up, markets go down, stuff happens. You know that, because you've owned a home before. You're not happy, but you're not out for blood. You didn't buy to make a quick buck. You bought to have a place to call your own. You know you'll be okay in the long run.
2. No, it's your appraiser's fault. We've covered that in Pumped-up trilogy, part 1: "The devil made me do it".
3. No, it's your loan agent's and mortgage lender's fault. But you're jumping ahead, because we'll cover this in Pumped-up trilogy, part 3: Frock coats are making a comeback.
4. No, it's your agent's fault.
If answer 4 is correct, meet fellow travelers Vern and Marty Ummel of Carlsbad, California. Their high-profile lawsuit against the agent, whom we'll just identify as "agent Mike" since he's had more than his share of bad pub lately, who in 2005 helped them buy their home went to trial earlier this year. The suit accused agent Mike of breach of fiduciary duties and negligent misrepresentation which, in this case, means pumping up the price.
How did it come to this? In early 2005 Vern and Marty decide to move from Northern California to the San Diego area. Before they hook up with agent Mike, the Ummels look actively for a home, backing out of two transactions and firing one agent—lucky agent!—behavior that might have given veteran agent Mike a heads up that, as buyers, the Ummels could have "issues". In May, agent Mike shows Vern and Marty, depending on who's talking, either 50, over 60 or as many as 80 homes over a two-week period, a burst of you-are-my-only-clients single-minded devotion that impresses the heck out of me and, more important, impressed the heck out of the jury that found agent Mike innocent. In fact, an April 11, 2008 San Diego Voice article says "juror after juror gushed praise for (Mike) and heaped criticism on the Ummels' failure to research the comparable sales themselves".
But I'm getting ahead of myself. After two weeks of exhaustive looking, the Ummels have, as Vern later admits on the witness stand, "a good sense of value in the neighborhood". I guess so. In fact, Vern and Marty probably know value in that neighborhood better than most agents. Finally Vern and Marty find a home they like, listed at $1.175M. On May 29 agent Mike writes up their full-price offer and presents it to the seller. Seller counters at $1.2M. Buyers accept Seller's counter, "despite concerns that they hadn't yet seen an independent appraisal on the property".
At this point we come to two questions that apparently were never asked over the course of an eighteen-month three-ring media circus. First, why did the Ummels pay more than list price for the house? Were they competing with other buyers? Or did they just have to have the house (or were they exhausted after looking at 50, over 60 or as many as 80 houses)? Second, if the Ummels wanted independent confirmation of the home's market value, why didn't they a) get it before they made the offer (an appraiser can generally respond in a few days, sometimes less), or b) write an appraisal or financing contingency into their offer so that, if the home didn't appraise at the purchase price, they could walk away from the transaction (as they'd done twice before) or renegotiate the price ?
Two related questions. When did the Ummels communicate their "concerns" about the home's true market value to agent Mike? And/or did agent Mike suggest a contingency to protect the Ummels, which they turned down? None of the news reports I've seen answer these questions, yet they seem to be the crux of the matter. Did the Ummels approach agent Mike, and in a timely manner, or did they wait for him to guess their concerns? Did agent Mike lead the Ummels down the garden path, or did he offer them safeguards which they refused?
Two more questions. Does the fact that agent Mike asked for a rush on the appraisal indicate that the Ummels had an appraisal contingency? And does the fact that agent Mike also acted as their loan agent have anything to do with what happened?
Of course, to ask these questions you need to know a little about real estate. You also need to be interested in writing a nuanced news story instead of a straightforward morality play.
By the time the Ummels get a copy of the appraisal, it's a week before escrow is to close and apparently too late to do anything (although not if they'd checked the box on the purchase contract that has the financing contingency running through close of escrow). The appraisal shows their home worth $1.175M, the original list price, and not the $1.2M they paid.
But paying $25k too much apparently doesn't rattle the Ummels. What does launch them, particularly Marty, into action is news, from "a flier, dropped on her doorstep by another Realtor a few weeks after they'd closed the sale", of a recent lower-priced sale in the neighborhood.
Vern and Marty get suspicious, start looking at other sales in the neighborhood and decide they've paid, not $25k too much, but $150k too much. Now here's where I get to riff on one of my favorite themes, the idea that information invariably empowers real estate consumers. Because according to both agent Mike's attorney and the jury foreman, the "comps" that empowered Vern and Marty come up with aren't apples-to-apples comparisons with the house they bought. One "comp", for example, has a lap pool that might increase its appeal to a few (mostly older) buyers while reducing its appeal to most buyers (mostly families seeking a backyard). The back yard of another "comp" is overlooked by neighboring homes and lacks privacy. The sellers of yet another "comp" were asking buyers to rent back to them for two years (oh sure, no problem).
Here's where it gets a bit nasty, especially if you're agent Mike. Because Vern and, particularly, Marty decide they aren't going to take agent Mike's chicanery lying down. Marty's weekdays are taken up with her job as a high-powered fund raiser, but her week-ends are apparently her own, because when we first meet her in February 2007 she's spent every week-end for the past nine month picketing not just agent Mike's Re/Max office but various other Re/Max offices in the area, and even the national headquarters in Colorado.
Agent Mike's attorney tries unsuccessfully to set up meetings between the Ummels and Re/Max executives. The Ummels' attorney confirms this but complains that "logistics have proven difficult". Maybe if Marty took a day off from picketing..."I will not stop picketing until we feel that Re/Max has been fair with us", she says. "I could be doing this for five years."
Or until she gets public affirmation and her fifteen minutes of fame in court. And it's a jury trial, too, which is usually bad news for a real estate agent. So imagine the Ummels' chagrin when the jury takes less than two hours to unanimously clear agent Mike. Not only that, they're big fans.
Marty is "devastated". "I think it sends a bad message to people about the real estate industry. [Marty, are you sure it's the jury that's sending "a bad message"?] Evidently there is not the relationship of trust that I would've expected." Although the jury tells her she's way off base, Marty has the zealot's reluctance to consider the possibility that perhaps she's spent considerable energy (and over $75,000 in legal fees) to look like an unguided missile. No, Marty is proud of herself for "doing what I thought was right".
No matter what the consequences are to the innocent. And how does agent Mike feel? "It's been extremely hard," says his attorney. Not only has eighteen months of picketing and media attention worn him down, but "now, when he looks at a client, he's got to wonder, what's going to happen? Are these people going to second-guess me?" Not only are agent Mike's clients, assuming he'll ever have any again, less likely to trust him, but agent Mike is less likely to trust his clients. Aside from that, it's a win-win for everyone.
Including the Voice reporter, who gets to intone that "the individual roles of people involved in the basic housing transaction [as opposed to the advanced housing transaction?] have come under fire. A soaring market this decade hid a multitude of mistakes, a plethora of cut corners and fudged appraisals..." Someone should count the "multitude of mistakes" and "plethora of cut corners" in the average real estate article.
And for the cherry on this sundae, let's get the input of a local appraiser, not associated with the case, who knows less than the jury and as little as the average bystander. The appraiser looks around and gives agent Mike, so recently acquitted, a swift kick while he's getting up off the floor. The Ummels "lost the battle but won the war", he declares, when it comes to "raising questions and delivering a hit to the reputation of real estate agents". (And when it comes to agent Mike's reputation, "another such victory and we are undone".) Rest assured that you can take whatever an appraiser says to the bank. Did I mention that agent Mike's expert-witness appraiser valued the Ummels house at $1.150-2M as of summer 2005, while the Ummels' hired gun—sorry, expert-witness appraiser—came in at $1.050M? Anyone shocked?
No, the issues go further than "delivering a hit" to an industry that didn't have a great reputation even before the trial, and since everyone except the janitor who mopped down the courtroom has had a chance to weigh in, I'd like to too.
One issue I see here is the never-ending quest for the real estate transaction with no consequences—or at least no unintended consequences. Did prices go up? Then the homebuyer basks in the glow of his investing genius. Did prices go down? Then for some it must be somebody's fault, and it sure isn't the homebuyer's.
Another issue is the idea that homebuyers can put their brains in neutral and coast without doing their due diligence. This isn't the norm—most buyers are hyper-alert to risk, real or imagined—but it happens occasionally, usually as, in the Ummels' case, in retrospect and at the buyer's convenience. Buyer concerns need to be expressed, and in a timely manner. Questions need to be raised, and answered to the buyer's satisfaction. If they're not, the buyer has only to look in the mirror to find the perp. I know a certain jury who'll back me up on this.
In the matter of agent technique, agent Mike may indeed be guilty as sin, of seeing every client through rose-colored glasses. "Sure", he muses, "they've run away from two deals and fired their agent, but I'm the guy that'll keep them in contract and in love with their agent". I believe the ancient Greeks had a word for this: hubris. Maybe an agent can play with dynamite once or twice and not blow himself around the moon and into a courtroom, but the odds are against it. Years ago a neighbor bragged to me that he'd sued both agents he'd used. Now he seems resentful that, not only am I not interested in listing his home, I'm not interested in talking to him about real estate.
And never under-estimate the apparent willingness of some attorneys to tell their clients what they want to hear. "Yes, Mrs. Ummel, we believe you have an excellent case, even though there's no legal precedent. The important thing is that you'll be a celebrity, and I'll have one more kid through Stanford."
But perhaps the biggest issue, in a business where success depends on reputation, is the damage one wrong-headed but resolute citizen—agent Mike, who may be biased, calls Marty "a nut job" ("the agent declined several requests to expand on his remarks", sniffs the New York Times in a nice bit of unconscious self-parody) while Marty, demurely denying she's "obsessive-compulsive", does allow to being "114 pounds of absolute perseverance"—a resolute citizen, I suggest, who doesn't maybe mind some celebrity, can do to a good agent's career and psyche.
I wonder how often agent Mike's phone rings these days? When it does, I wonder if he's afraid to answer?
Next, Pumped-up trilogy, part 3: Frock coats are making a comeback.