Friday, April 04, 2008

Marinites Elevated to Rank of "Poster Children"

Here is the latest on that spoiled, entitled Marin couple (ok, ex-Marin), who I've blogged before, Marty and Vernon Ummel, who agreed to pay a stupid price for a house in San Diego (hey, they came from Marin where people pay stupid prices all the time; it's part of their culture) back in 2005 and now that their house has lost value they are suing the realtor; jury selection has begun:
Tomorrow, Vernon and Marty Ummel, who purchased a $1.2 million home in Carlsbad three years ago, will try to convince a jury that their real estate agent defrauded them when he failed to inform them that similar houses on the same block were selling for more than $100,000 less than what the Ummels had paid.

Jury selection is expected to begin tomorrow morning in the Vista courtroom of Superior Court Judge Lisa Guy-Schall.

Although legal experts say the case is intriguing, most doubt it will spawn a raft of lawsuits in which disgruntled buyers go after real estate agents alleging they were led astray.

Experts also question whether the Ummels will be able to prevail, recognizing that ultimately, the Ummels were the ones who decided to pay what they did in 2005 for their two-story, 3,700-square-foot tract home in a neighborhood just north of the Four Seasons Aviara golf course. In those days, prices throughout the county were still climbing.

“The plaintiffs are not victims of a subprime loan scheme, nor are they victims of the declining real estate market,” attorneys for the Re/Max agent wrote in court papers supporting their request for a delay. “Plaintiffs simply think they paid too much for their home when they purchased it. Nevertheless, plaintiffs have now painted themselves as the 'poster children' of the current crisis.”
Well, I certainly do not expect the Ummels to win, and I hope they don't because they agreed to pay a stupid price for their house and they should not be exploiting the legal system to make up for their poor financial decision-making.

Be that as it may, I do hope something good comes out of this: I hope agents will practice greater disclosure; I hope buyer's interests will be better represented during the housing sale process and that the inherent conflicts of interest baked into the process of buying/selling a house will be eliminated; I hope...

As one commentor said:
the laws of agency and the concept of fiduciary duty are in direct conflict with the manner in which agents are compensated. Thus, this scheme is designed to be a losing proposition for the buyer. Always.
If only that one conflict of interest were to be eliminated, if agent compensation was not tied to the final selling price of a house, then we would be that much closer to a free and open market for housing. It would not take us all the way there of course (have to get rid of all the government sponsorship, tax breaks, etc.), but it would be a significant step in the right direction.

11 Comments:

Blogger marin_explorer said...

"[The Ummels] will try to convince a jury that their real estate agent defrauded them..."

Do they honestly expect the jury to believe that well-educated university professionals were duped by a realtor? Huh?! Did they both sleep through their critical-thinking class--or basic economics? Oops.

Apr 4, 2008, 9:52:00 PM  
Blogger John said...

Read freakenomics - there is a good argument that real estate agents are motivated to just make the sale at whatever price since the delta in commission is pretty small (even on 100k price difference we're talking 2.5k on a 27.5k commission). Who cares if your seller gets the best price or your buyer overpays, just get the deal done and move on ....

Changing the basis for payment to eliminate the price based fee for buyers won't change that. To really make a difference for buyers you need to come up with a plan that has realtors rewarded for saving money (very hard to actually implement).

Apr 5, 2008, 10:57:00 AM  
Blogger Marinite said...

I completely agree that just removing the association between agent compensation and the final sale price of a property will not do too much. But it is an obvious first place to start.

What if agents were paid by the hour? Would that not result in competition among agents in ways that actually matter to a buyer? If we had agents competing on how much per hour they charge and how much they can accomplish per hour worked, would that not result in savings for the buyer (and seller).

Apr 5, 2008, 11:08:00 AM  
Blogger Emel said...

Interesting

Apr 5, 2008, 11:34:00 AM  
Blogger Lisa said...

I received a newsletter from a local Marin RE agent with stats for the county. Below is the Q1 2008 versus Q1 2007 change in sales (SFR only). Sales are way down everywhere except Ross, which usually has a tiny number of sales anyway.

Novato -24%
San Rafael -38%
Mill Valley -49%
San Anselmo -7%
Tiburon - 32%
Fairfax -28%
Corte Madera -42%
Ross +40%
Larkspur - 54%
Sausalito -54%

No wonder the IJ isn't printing data for local towns anymore. And what happened to Southern Marin being so special and all that money wanting to live in Sausalito and Tiburon and Mill Valley? Sales in the southern part of the county are down hugely.

For the month of March, 218 properties went into escrow versus 285 last March (-24%). Remember, these aren't closed sales yet, just in escrow. For March, closed sales of less than $1M were down 40%. Sales between $1M and $2M were down 42%. Sales between $2M and $5M were down 31%. Sales over $5M were down 29%.

Somehow, I'm feeling "less special" about living here.

Apr 5, 2008, 3:28:00 PM  
Blogger Lance said...

Marinite asked:
"What if agents were paid by the hour? Would that not result in competition among agents in ways that actually matter to a buyer?"

Smarter, better, more efficient agents who took less time to find the right house for you would get paid far less than dumber, less efficient agents who took much longer to find you the wrong house.

It used to be that there were no buyer's agents. All agents ... even the one helping the buyer find something ... were considered to have a fiduciary duty to the seller and the seller alone. Even today, the buyer's agent is considered to still have a fiduciary duty to the seller. I think the problem here is that not enough buyers realize that the agent is always working for the seller and not them ... even when s/he's showing them houses.

Apr 6, 2008, 9:38:00 AM  
Blogger marinite2 said...

Smarter, better, more efficient agents who took less time to find the right house for you would get paid far less than dumber, less efficient agents who took much longer to find you the wrong house.

But proportionally more of the business would go to the "Smarter, better, more efficient agents".

Apr 7, 2008, 9:48:00 AM  
Blogger Thus Spake Z said...

A simple solution to buyers having a fiduciary relationship with a real estate agent would be for the buyer to pay the agent. There are a number of models that could work, including by the hour (whether they eventually buy or not); by the job; based on deliverables (e.g., tours of properties that met the buyer's requirements; verifiable comps and data; purchase negotiations; managing financing and escrow, etc.) or some combination thereof.

Will this ever happen? I don't believe so. Why? Because buyers don't want to pay out of pocket for services, even though they are willing to pay by means of higher prices. Even if the price were reduced by the buyer's agents commission I don't think buyers would be willing to do it. There is something about paying on a contingency basis (agent only gets paid if a sale closes) that buyers choose even if it costs more.

As an aside, isn't it about time that the posters here got over the "special" thing? It's like the cool in phrase or joke that turns boring and stupid from overuse. Besides, if people hate it here so much they should probably just move to one of the other places that are more affordable, have better political and cultural sensibilities, better weather, better recreational and cultural activities, friendlier people, more high paying jobs, better schools, etc.

Apr 7, 2008, 1:46:00 PM  
Blogger W.C. Varones said...

They lost.

Apr 11, 2008, 12:34:00 PM  
Blogger marinite2 said...

LOL!

"It took a jury less than two hours Thursday afternoon to unanimously clear a real estate agent accused of failing in his duties to a couple he helped buy a tony Carlsbad home."

Thanks for the update w.c. varones.

Apr 11, 2008, 2:04:00 PM  
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Apr 26, 2008, 6:49:00 AM  

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