Things that make you go hmmmm.

Can you sue your realtor if you think you paid too much for your house?

If I were an economist,  I think I would say that the value of the house is exactly what you paid. I suppose you could have bad or misleading information, but it seems these folks are angry because it turned out they could have done better. Yeah, well, I feel the same way about my purchase of QQQ right before the tech bubble burst, but I am not suing the person who told me to buy it. ***I’m looking at you, MOM!***

Isn’t this the essence of a market? Especially in California, all you have heard for the past few years is that the market is “crazy,” which I take to mean unpredictable and weird. Thousands (millions?) of people had unpredictible and weird in their favor, but that means it is going to be crazy NOT in someone else’s favor.

I’m not an economist, though, so I should be sentitive to the fact that markets are social constructions, created by those in and around them and often reinforced and protected by law.  And, markets often have unequal disparate impacts on people with less money and power than others in the same market.  But the woman who describes herself as 114 pounds and owns a (roughly) $1.2M home in San Diego is not making me too sympathetic.

I should add that this seems like a standard tort tale which will, in the end net this woman nothing and yet fuel the litigation explosion MYTH. That’s right, myth. if you don’t believe me, you can read this, this, this , this , or pretty much anything by this guy .


10 Responses to Things that make you go hmmmm.

  1. jeffaregularworkinglawyer says:

    This is actually an interesting case. As the article points out, the residential real estate buyer’s agent is a relatively new phenomenon. It is obvious that an agent has fiduciary duties of loyalty and due care to a principal, but in the context of a novel relationship, the exact nature of those duties are uncertain — until courts start to define them.

    This also points out the perverse incentive in the buyer’s broker/client relationship. Unlike a seller’s broker, or a contingent fee plaintiff’s lawyer, who makes more money when the client makes more money, the buyer’s broker who takes a share of the selling broker’s commission makes more money when the client pays more money. Should buyer’s brokers be required to work only for an hourly rate, rather than for a commission? Or should home buyers have the option of waiving the inherent conflict of interest? Should the sophistication of the buyer matter? And what about Naomi? By the way, here’s an article that assures consumers that the conflict doesn’t matter — the broker will be more concerned about keeping the buyer’s good will for future transactions than making a few extra bucks in the short run. Do you believe that?

    And yeah, Ms. Ummel seems like a pretty unsympathetic character. But a lot of beneficial law has been made by unattractive plaintiffs. Nice people usually don’t bother to take matters of principle to appellate courts.

    Nice link to Marc Galanter — Go Badgers!

  2. laurabethnielsen says:

    To counter your article about brokers, I come back with Freakonomics, here:

    which I think argues against my initial point and in favor of yours.

    Sorry about Green Bay. Go Badgers!

  3. wjr2004 says:

    I find it interesting how many professions escape conflict of interest rules, though they are subject to the same basic representation problems as lawyers (take bankers, real estate agents, escrow companies who do repeated business for one group of lawyers), or even other employees with inside information). My hunch is that if much of the decision to be bound by conflict of interest rules or not is tied up in whether a type of employment represents itself as a business or a profession.

    Also, I would like to note that I find the realtors incentives in the price bargaining arena fascinating. By excluding the actual buyer from the purchase negotiations (other than stating bids). They are generally free to play both sides of the coin, without fear of loss to future work.

  4. laurabethnielsen says:

    so what is the difference (from a fiduciary duty perspective) of a buyer agent and a regular agent who sometimes represents buyers and sellers?

  5. jeffaregularworkinglawyer says:

    Not really on point, but a post about litigation made me think about non-legal sanctions for anti-social behavior. In law school, we learn that lawsuits have social utility as a substitute for violence — without a court system, businessmen would have to hire goons to beat payment out recalcitrant deadbeat buyers (or just not sell on credit). And non-violent, non-legal sanctions, like community shunning of a dishonest businessman, can’t be counted on as society becomes more anonymous, and norms of correct behavior become more uncertain. But as we all know, there are effective sanctions that are both non-violent and non-legal.

    Here’s an article about a sanction for rudeness by an empowered adult to a child. Such behavior would have gone unsanctioned a few years ago — not anymore. And it strikes me, and I’m sure it’s not a novel thought, that such sanctions will play an increasingly large role in regulating public behavior in the future.

  6. jeffaregularworkinglawyer says:

    LB — A “regular” real estate agent always represents the seller, even when she’s driving a prospective buyer to 15 different houses. The seller has two agents — the listing broker, who puts an ad in the paper and sits in the kitchen during the open house, and the schlepper, a/k/a cooperating broker, who actually has a relationship with the buyer. Typically, the listing broker offers a split of the commission she negotiated with the seller to the cooperating broker. (I know that you own a house — is this really news to you?) This has been a problem — buyers don’t understand that they are confiding in a person with an obligation to give information to the buyer. This led to the development of a new category of brokers who expressly represent the buyer, and have fiduciary duties to the buyer, not the seller. But they are still compensated by a split of the listing broker’s commission.

    In the Ummel case, there was no written agreement. Big mistake. The Ummels apparently thought that the broker was their agent. And if he encouraged them to think so, maybe he was. This might not have been the case several years ago, when buyer’s brokers were rare, and “everyone knew” that all real estate agents represented the seller. But the more common buyer’s brokers become, the more reasonable it is for a buyer to believe that the agent driving him from house to house is really his agent.

  7. jeffaregularworkinglawyer says:

    That should be “information to the seller.” But you knew that.

  8. vickywoeste says:

    LB, you of all people don’t need to be referred to Freakonomics–as Steve shows, realtors are the most obviously self-interested economic actors on the planet (or maybe just one of the most easy to prove self-interested). Don’t you think this phenomenon–the confusion over whether a realtor is acting as a buyer’s agent or not–is just an inevitable result of the monopoly on market information that realtors control? this lawsuit represents a protest against that stranglehold on information. If the plaintiff (who, I agree, is not terribly sympathetic and may indeed be the “nut case” the defendant calls her) wins, look for the National Realtors Association to go on the offensive, big-time, to protect their competitive advantage.

    I personally plan never to buy or sell a house again in my life time . . .

  9. vickywoeste says:

    Guess I shouldn’t try to blog when I have a migraine–you did already cite to Freakonomics, lb–

  10. laurabethnielsen says:

    You learn something new every day. I did not know that the seller’s agent owed any duty to the buyer. Never heard about a “cooperating” agent. I always thought your realtor represented you all the time and that the commission split was — well, I don’t know — law, custom, whatever, but I did not realize that was how that worked. Now I look like a moron.

    when are you going to post your first entry, Jeff? People are bored by me.

    David? Bob? **crickets chirping**

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