Who Decides How Much is Too Much?

The following article from the San Diego Union Trib outlines a case here in San Diego.  It raises a lot of questions such as who decides how much a home is worth.  Do agents or buyers? 

 

Homeowners suing agent over high purchase price

By Lori Weisberg
San Diego union Tribune Staff Write

March 31, 2008

Anyone who bought a home near the peak of the once-sizzling real estate market no doubt has found it painful to watch prices tumble with no end in sight. But in the case of one North County couple, it's not the volatile market they blame but their real estate agent, who they say duped them into overpaying.

And they're going to court to prove it.

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 real estate broker has an obligation in good faith to tell the buyers what he knows about pricing information and that there were houses selling for less than what the buyer was prepared to buy. And the buyers have an obligation to wake up and smell the roses before they buy and get as much information as they can," said George Lefcoe, a professor of real estate law at the University of Southern California.

"As an agent, you'd have to basically lie and cheat on this one, and the buyers would have to be as innocent as angels."

The Ummels, who moved to San Diego County after selling their San Rafael home in Northern California for $1.15 million, have declined to talk about their case, as has their attorney, because of the pending trial.

The lawyers representing Michael Little, the Re/Max Associates agent who sold the Ummels their home, also have said they will not comment. Little, too, said he cannot talk about the case until after the trial.

Earlier this year, the law firm representing Little and the Encinitas brokerage he works for sought a delay in the trial and a change of venue because of a January article in TheNew York Times in which the Ummels discussed their case shortly before it was supposed to go to trial.

Guy-Schall decided to keep the case in North County but agreed to a delay.

"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."

In the past, the Ummels have not been shy about discussing the circumstances surrounding their purchase. They've made it their mission to publicize their anger with their Realtor, beginning with Marty Ummel's weekly picketing of Re/Max offices in 2006. By the time they filed their lawsuit in July 2006, prices in San Diego County had started to fall.

Earlier this year, the couple were featured in an NBC "Today" show report about their lawsuit in which Marty Ummel, 60, once again expressed her anger.

"We feel we were misled, we are disappointed, we do feel angry," she told an NBC reporter. "We worked hard, and to think we've done that all of our lives and then for a Realtor not to tell us . . . that there was a house selling for much less."

Ummel said at the time that she was confident she and her husband would win in court, but she said that if nothing else, they are at least "trailblazers" in their quest to reform the real estate industry.

"We want disclosure," she said.

When Vernon Ummel, 71, and his wife decided in late 2004 to sell their Northern California home and search for property in San Diego County, the real estate market was red-hot. Every month, median home prices were posting year-over-year percentage increases in the double digits.

By April 2005, when the Ummels began working with Little, the market was still healthy, though price increases had started to moderate. The couple had a verbal agreement with Little to have him work as their real estate agent, as well as help secure a loan for the purchase of a property, according to the Ummels' lawsuit.

Although there was no written contract, agents representing buyers are legally obliged to represent their best interests, according to the legal counsel for the California Association of Realtors.

Before agreeing to buy their home on Amante Court in May 2005, the Ummels say, they had reminded Little repeatedly that they were out-of-town buyers unfamiliar with the county real estate market and asked him if the $1.2 million purchase price was a "good present-day price." He assured them it was "a very good value," according to court papers. The house had been listed for between $1,175,000 and $1,245,000.

The Ummels also claim in their lawsuit that Little never provided them with lists of comparable properties that had sold in the immediate area. Court papers filed by Little's lawyers state that the Ummels had indeed reviewed 40 other comparable properties, though it is not clear whether those were provided by the agent they had worked with before Little.

The couple also allege that they repeatedly asked Little for a copy of the appraisal that was being prepared for the purpose of getting a loan but never saw it until after they closed escrow in late July. The appraisal did value the home at $1.2 million.

What angered the Ummels and ultimately led them to file their lawsuit was when they discovered a month later that two other homes on their street had sold for substantially less.

According to county assessor records, one of the Amante Court homes sold for $1,025,000 on July 29, 2005, the same day the Ummels closed escrow. The other had sold for $1,095,000 three months earlier. Each house is described as having the same square footage as the Ummels' house.

More recently, in August 2007, a home on Amante that is about 500 square feet larger sold for $1,150,000. And currently for sale on the same street is a 4,192-square-foot home for which the seller is asking $1,185,000.

A review of recent property records reveals that no other home on Amante Court has sold for as much as $1.2 million.

Amante Court is a quiet cul de sac of two-story Mediterranean-style homes and palm trees that looks much like many Southern California subdivisions. The difference is these homes, built by Brehm Communities, are much larger and include more luxury amenities.

When the homes were built nearly seven years ago, they were selling for more than half a million dollars. Within four years, prices had doubled.

While some experts argue that valuation of properties is far from an exact science, they also point out that real estate professionals have a legal and ethical obligation to provide buyers with all the pertinent information they need before making what often is the biggest purchase of their lives.

"You can't necessarily believe everything that everyone says, but if there are houses in escrow that are virtually identical to your house that are selling for less, and that information is readily accessible to your agent, you'd expect them to give you that information," said Shaun Martin, a law professor at the University of San Diego. "If everything the plaintiff is saying in the lawsuit is true, it sounds like it's a darn good lawsuit. But there are always two sides."

San Diego Realtor Lori Staehling acknowledged that anyone can file a lawsuit, but she doubts that local agents have to worry about being targeted. Staehling and other industry experts said they know of no other case like the Ummels'.

"Buyers and sellers decide what they're going to pay or sell for," said Staehling, president of the San Diego Association of Realtors. "We don't determine those prices. We do provide information, but at the peak of the market when people were paying high prices, there were comps to justify that."

Originally included as defendants in the Ummel suit were John Contento, who handled the appraisal for the loan, and Horizon Pacific Financial, the broker for the Ummels' $300,000 loan. Earlier this year, Contento and Horizon Pacific Financial settled with the Ummels for $10,000 each.

Russ Coats, owner of Horizon, declined to comment, and Contento could not be reached.

San Diego appraiser Todd Lackner said many people in the industry are closely watching the Ummel case, and while Lackner said he believes the couple have a legitimate gripe, he doubts they will win in court.

"I give the buyers an awful lot of credit. They're sticking to their point, and most people couldn't afford these legal expenses they're shelling out," Lackner said. "But appraisals are subjective. Did they pay too much? Yes, they absolutely did. But they bought it willingly. No one forced them to purchase that house."