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.

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13 Responses to Real Estate Agent Accountability for Bad Advice

  1. avatar Greg Swann says:

    Oh, good grief. Why do you even read that idiot? The projections, taken out of context, of course, are mine. At the time I wrote that, I thought our boom in Phoenix would last eight months longer than it did. Even so, most of my investors did very well on my advice, some profiting in the very high six figures. My short term projections near the end were off, but, in the long run, Phoenix should pay off handsomely. I’ve discouraged new investors since early 2006, but lately I’m getting calls about the very detailed charts that were omitted from the quote. A newer suburban rental home in Phoenix is cash-flow positive again, which means it will self-amortize regardless of short-term market performance.

  2. Hi Greg,
    I actually like some of what I read on that site despite the incredible disdain he and most of his readers (and he has a lot of readers) has for our industry. I like to keep abreast of consumer perceptions of our industry given the mission of TrueGotham and his readers sure have some strong perceptions.
    Having said that, it doesn’t at all surprise me that your letter was taken out of context. And as I stated in my post, I don’t believe that you were at any point trying to mislead anyone. That’s just ludicrous given your exposure. Thanks for stopping by and providing the explanation.

  3. avatar Greg Swann says:

    Bless you, sir. Thank you. I have to take it on the chin because I led with it. I should have revised that page when events proved it wrong. Instead, I stopped paying attention to it when I started sending investors to other markets.

  4. Greg Swann has been wrong and will be wrong. That 2005 article shows how he drank his own kool aid and he has not told investors to not buy in 2006. Want me to prove it?

  5. Greg Swann,
    He is not an idiot.
    QUOTE: Even so, most of my investors did very well on my advice, some profiting in the very high six figures. :QUOTE
    That’s why I cannot buy my first house even though our income is well above average for our area. Because of all your greedy “investors”.
    For example. There is a house in our neighborhood,
    One of the “Investors” purchased this house 12/12/2006 for $352,000. Do you know how much they are asking for this house now, 9 months later? Yep, $499000. Are they insane? House is not an investment, it’s a place to live and grow up your kids.
    Ha-ha. This house has been listed for a while (at least 5 months) and now they reduced the price to $475000. Oh, man. How greedy they are!
    Big Ponzi scheme is over guys!
    To the author. I’m pretty sure that you will not publish my comment because it’s not what you want to see on your blog. Ha-ha.

  6. Cross-train for new careers.

  7. avatar Keith was right says:

    “I should have revised that page when events proved it wrong.”
    Really? You would have gone back and edited the page so you wouldnt be proved wrong?
    Bless you sir

  8. avatar Renterfornow says:

    Realtors and the entire REIC are a bunch of hucksters imo. This housing collapse will humble the greedy bunch of them.

  9. Doug –
    Since you are discussing the potential for a claim for poor advice (ie, professional liability), I thought I’d jump in here. The sort of “advice” you are talking about is little more than an opinion (boneheaded and stupid, yes, but still just an opinion) on the direction of the market. As such it would be very, very difficult for a buyer to successfully make a claim that they relied on this advice to their detriment, AND that therefore they have a basis to recover against the agent/broker.
    A real estate broker’s opinion about the history of a particular market, and based upon that history, the future likelihood of the direction of that market cannot be reasonably relied upon as any sort of guarantee. Just as a lawyer might agree that a client has a good case with a reasonable likelihood of success, that and that alone is not actionable as a malpractice claim if the case does not turn out as expected.
    I guess the real question is whether a “reasonable individual” would rely upon such advice, and of course only an idiot would make such a major decision about whether or not to purchase a particular property in a particular market at a particular moment in time, based upon such an opinion stated by their broker. So, did some buyers do so? Of course. All that means is that they are an idiot, and guess what? There appear to have been more than enough idiots – buyers, brokers, mortgage lenders, appraisers, etc. – to go around in the past few years.
    Now, does that mean that someone might not be tempted to make such a claim and file a lawsuit? In this great country of ours, anyone can sue for anything, and our society is geared towards finding SOMEONE responsible for anything bad that happens. The claim/suit, would likely fail, but in the meantime the broker could run up a pretty significant legal bill defending him/her/their self.

  10. Seems some of our friends at Housing Panic have come over to chime in…welcome everyone. Love to hear what you have to say.
    Bitter renter,
    I post ALL comments unless they contain profanity regardless of their tone, perspective, or insanity quotient. And I’m not suggesting at all that your comments are insane. The mere suggestion that I wouldn’t post your comment shows the level of distrust and cynicism that you have likely for everyone (or maybe it’s just us sleazy real estate agents?) Anyway, I hear you loud and clear and regardless of what you may think about real estate agents, I absolutely appreciate and respect your perspective. I get the frustration. Believe it or not, I’m human, wife and kids, hard worker (yep, that’s right) with a great deal of integrity. AND I make my living selling real estate!!! Can you actually believe that it’s possible for someone to earn their living in real estate and have integrity. It is indeed. Seems prices are coming down in your neighborhood so you may get your chance to buy sometime in the near future. I hope you do and I hope you don’t have to deal with a sleazy real estate agent, or a sleazy attorney, or a sleazy mover, or a sleazy telephone installer, or a sleazy contractor, or a sleazy banker, or a sleazy Homeonwer’s Association, or a sleazy neighbor, or a sleazy mailman, or a sleazy paper boy…get my point?…I hope so. All the best to you.
    Feel free to post evidence of Mr. Swann’s “kool aid consumption.”
    Thanks for sharing your insight.

  11. avatar david says:

    Greg Swann doesn’t allow any negative comments at his propaganda blog so nice to see you allow the truth here

  12. avatar Bob C says:

    Realt-whores trying to console each other. Kewl!

  13. avatar Dan says:

    I really hope that realtors in the end get to feel the pain they have caused to the homebuyers they have mislead.

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