Real Estate Agent Accountability for Bad Advice

When a doctor or lawyer gives you bad advice that proves to be harmful to you either physically or financially, there is often a case for malpractice.  So what happens when a real estate agent puts on an economist’s hat and spews advice about buying or selling a home in a booming market that takes a sudden turn for the worse thereby costing the homeowner thousands of dollars or perhaps even forcing them into foreclosure and bankruptcy?  Likely nothing and here’s why…

This morning, HousingPanic posted a "state of the market" letter from a Phoenix Realtor written in 2005 which provides some bold and ballsy predictions for a market that in hindsight is seeing the bottom fall out from what I am reading and hearing.  Here’s the letter:

September 2005, Phoenix Arizona
How rich would you like to be?

In the 12 months leading up to August 1, 2005, single-family residences in the Metropolitan Phoenix/Scottsdale market appreciated by an average of 47%. That’s the average, and it includes challenged neighborhoods and cities so remote as to qualify as rural.

If you look at just the sweet spot, the middle of the bell curve, Phoenix/Scottsdale-area homes appreciated by 60%, 80%, over 100% in some areas.

Price pressure has not slowed down, and there are good reasons to believe that appreciation over the next 12 months will be 20% or more, possibly a lot more.

We have a built-in baseline demand from the Great Lakes and other snowy regions. And we seem to be experiencing a steady increase in our long-term in-migration from California.

Our best estimate right now is that annual appreciation over the next seven or eight years should average out to around 11%.

.. If you can make that down payment, or if you can absorb a negative cash-flow from other sources of income or with a negatively-amortized loan, your ability to build long-term wealth in the Phoenix residential real estate market is tough to beat!

Now of course hindsight is 20/20 and it’s very easy to attack this agent for this letter today.  But is it fair to attack him?  I have always been very careful to share opinions only and never make bold predictions on the direction of the local Manhattan real estate market.  In fact, I often read with amazement the "predictions" of my colleagues and wonder precisely how they are qualified to make such statements about the future of such a complex market like housing.  Even people whom I consider the most qualified to make these statements like Jonathan Miller are never heard making solid concrete predictions about the future of our housing market.  So why do some feel they have a crystal ball and make such bold predictions?  It’s my humble "OPINION" that many of us start to believe our own hype and our egos begin to take over.  Yes, I said "us" because I’m sometimes guilty of  lacking humility too but fortunately my readers provide quite a large serving of humble pie via their comments and emails.  We are so immersed in our markets that it sometimes becomes difficult to step back and imagine anything different than what we are experiencing on any given day…our market change?…heck no.

In this particular instance, I believe that the forward projections made by the agent were absolutely made from a place of knowledge and integrity.  I know, it doesn’t look like that now but here’s my personal experience and I make great efforts to handle all of my business transactions and conversations with the highest level of integrity.  When I’m at a cocktail party and someone asks (and everyone does) "how’s the market?", I’m amazed at the different responses from the inquirer when I answer that question.  If I share my opinion that the market is stable, soft, quiet, or ready to drop, I’m met with smiles, pleasantries and comments like "you’re so honest."  On the other hand, if I share the opinion that the market is strong and prices continue to hit record levels, I’m often questioned further and even met sometimes with "rolling eyes" as if I’m making it up.  Both response are completely honest and based on my experiences in the current marketplace when I make them.

So when this agent made these statements in 2005, he was probably quite confident that the bottom wasn’t going to fall out of his market.  To suggest that he intentionally mislead his clients is pure conjecture.  Unless we know this person to be someone of low integrity, how can we judge her/his intentions.  Of course there are a percentage of real estate agents who tout "buy now" in any market and we (real estate agents) can always rationalize why someone should buy but it doesn’t mean we always do.  I have often suggested that buyers wait or rent based on their needs and time horizons.   

Many of us take our business very seriously and the relationships that we forge with our clients are precisely the reason that we succeed in any market, hot or cold.  Integrity is the key factor in building those life long client relationships and lying about what direction you think the market is going isn’t going to win you clients for life.  So the next time you question your real estate agent about how the market is doing, consider the source.  Are you dealing with someone who is knowledgeable, professional and honest enough to qualify to answer that question?  If not, don’t ask.  And remember that despite their knowledge, professionalism and integrity, they’re still providing an opinion.