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Entries Tagged as 'War stories'

As The Market Cools, Lawyers Are Salivating

January 22nd, 2008 · 9 Comments

Well, it was just a matter of time before someone who bought at the top of the market sued their agent because they paid too much for their house. In this article in today’s New York Times, we learn of the sad story of the Ummels who bought a retirement home in Carlsbad, CA to be near their children.

The Ummels worked with a Buyer’s Agent who had a fiduciary responsibility to assist them in finding and purchasing their home. They looked for quite a while, fired one agent and then canceled contracts on two other homes that they had written offers on. I’m sure nerves were getting a little frayed for all concerned by the time they finally bought their home.

“Ms. Ummel claims that the agent hid the information that similar homes in the neighborhood were selling for less because he feared she would back out and he would lose his $30,000 commission.”

Where things get interesting, and their agent, Mike Little, makes the rest of us look bad is stated further on in the article:

“Mr. Little also worked as a mortgage broker. The Ummels say he encouraged them to get their loan through him. Mr. Little ordered an appraisal of the house but did not respond to the couple’s requests to see it, the suit charges.

A few days after the couple moved in, in August 2005, they got a flier on their door from another realty agent. It showed a house up the street had just sold for $105,000 less than theirs, even though it was the same size.

Then they finally got their appraisal, which told them the house up the street was not only cheaper but had a pool. Another flier in early October mentioned a house down the street that was the same size and closed the same day as the Ummels’ but went for $175,000 less.

The Ummels accuse Mr. Little not only of withholding information but of exaggerating the virtues of their house to push them into a deal.

Ms. Ummel said in her deposition that Mr. Little had told them “many times that it was a very good buy.”

The mortgage brokerage that funded the loan, and the appraisal company both settled out of court, but Mr. Little fights on. I bounced this off of fellow contributor Eric Trailer, and we saw a couple of red flags waving.

1) Mr. Little acted as the agent and loan broker. This is legal, but as noted in the article, he now has twice the motivation to get the deal done.

2) He urged them to get their loan through him - again legal, but the ice in sunny Carlsbad is getting thinner.

3) Mr. Little’s appraiser found the house to be worth $1,150,000 to $1,200,000 in the summer of 2005, the Ummels’ appraiser valued the house at $1,050,000. This is about 10-15%, which is pretty significant, but within the realm of possibilities. I’m getting nervous if I’m Mr. Little’s broker however.

4) Mr. Little didn’t share his appraisal the Ummels. (His broker is drinking heavily at this point.)

Long story somewhat less long . . . The Ummels (plaintiffs) are suing because they didn’t get what they felt was appropriate representation from their agent. This is what many consumers expect of Realtors, and books like Freakonomics don’t help.

One of the things we contributors to 3Oceans preach is Transparency in Real Estate. We share the information and tools that we use with our clients, provide data from unbiased sources like Altos Research, and don’t try to do loans and sell houses at the same time.

End of rant, let the comments fly!

Thanks for reading . . .

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Tags: * Type of Content · Analysis · Bad Realtors · Business of real estate · Buyer and seller tips · Buyers · Consumer · Crooked realtors · Deceptive realtors · Freakonomics · Good realtors · Industry · Market updates · Mortgages · Realtors who give the business a bad name · Sleazy realtors · Transparency · Types of realtors · War stories

War stories — #1 — Pre-payment penalty

September 6th, 2006 · No Comments

I thought it would be neat to start a set of real estate “war stories.” This first one nearly bit a recent client of mine, but thankfully the final result was all good.Client was a buyer, looking for homes in the $1M to $1.3M range here in the general Palo Alto/ Menlo Park, CA area. Problem was — and to some extent still is — there were lots of other buyers out there looking for, and bidding on, exactly the same type of home.After two whipsaw experiences of finding a home, falling in love with it, bidding (in one case against 12 other intrepid souls) … and losing, said clients were (understandably) getting discouraged.Third time lucky, however. We got the property (in that case against only 4 others) and were solidly in contract. Everything was going smoothly…until about 3 days before the close of escrow.

I got a nervous phone call from the listing agent: “Ah, Kevin, I got bad news. Turns out my client has a pre-payment penalty of $12,000 on the loan, and that penalty expires 7 days after our scheduled close.”

Translation: Houston, we have a problem. If we close on the original date, my seller will be stuck with a $12,000 bill (more accurately, would net $12,000 less than what he had planned on).

Our options:

1) Tough luck. A deal’s a deal’s a deal. We’ll close as scheduled, and your client will just have to suck it up. This is something they should have noticed well before. Not the way I like to operate, however, and not the way my client wanted it either — you know, golden rule and all that.

2) Ask the bank for some grace. Fat chance. Bank wouldn’t budge.

3) Delay the close of escrow by a week, saving the seller $12,000. Not so easy, however. We had a tightly choreographed 3-week lineup of tradespeople lined up to do some work on the property, starting the day after the close of escrow, with my clients moving in immediately afterwards.

Fortunately, we found a way to make choice 3) into a win-win. We delayed the close of escrow by a week, so the seller saved his $12,000. In exchange, the seller reduced the sales price slightly to make up for the inconvenience to my clients, the buyers. We tightened up the tradespeople timetable, had them start a day before the close of escrow (that’s a whole other story), and figured out a way for my clients to move in only a few days later than originally planned.

Everybody won: Seller saved a good chunk of change; my buyers got a bit off the sales price, and started their new mortgage payments a week later, a not insignificant savings for a $1M+ property.

Morals of the story:

  • Always check for a pre-payment penalty clause before putting your home on the market
  • If something’s going to go wrong in a deal, it’s not going to happen at a convenient time.
  • Creative and cooperative thinking often leads to a better outcome for everybody

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