Claims by the buyer that they have overpaid

The Market Has _________________, But The Claims Remain The Same

Last month's article addressed one type of claim that I often see when a market is in transition. This month's article discusses the other types of claims that I have seen in a transitioning market.

Buyers who purchase at or near a peak in a market cycle often make a claim against their agent that they overpaid for the property. The crux of this type of claim is that the agent was either not aware that the market was in transition or failed to advise the buyer of that fact.

Market trends are far easier to identify in hindsight than as they are occurring. This does not, however, deter buyers from making a claim that they paid too much for the property. These claims are often based upon an evaluation of the following types of information: (1) the comparables that the agent used to inform themselves, and the buyer, of the value of the property; (2) the agent's knowledge and experience with sales in the neighborhood or location of the property; (3) days on market; (4) inventory trends; (5) whether there was competition for the property; (6) whether there were prior offers; (7) the terms and conditions of the offer, including whether there was an appraisal contingency; (8) the lender's appraisal, if any; (9) any impact that the pricing of the property may have had on interest in, or the lack thereof, the property; (10) information the agent had of market conditions based upon their experience or based upon the experience of other agents in their office; (11) information the agent had received on this subject during office meetings, marketing meetings, or tours of other properties listed for sale; and (12) any opinions expressed by the agent in communications with the buyer or in any marketing material, including social media posts.

The strategy used by an attorney in pursuing this type of buyer's claim will be impacted by the information obtained in evaluating the facts and circumstances identified above. If the agent is not current or denies having any information on these subjects, then the buyer's claim will probably be based on the concept that since the agent was uninformed or uninterested in these issues, they therefore failed to properly protect the buyer's interests. On the other hand, if the agent acknowledges having information on these subjects, then the agent will want to be able to prove that this data was communicated to the buyer and that there were other factors or issues that impacted the buyer's decision regarding how much to pay for the property. Such factors might include the buyer's needs, wants, and/or motivations, any pressure the buyer faced, the concept of buyer fatigue, and the buyer's knowledge, training, skill, and experience, if any, with respect to the purchase of real estate.

Claims by sellers to cancel the listing agreement because the property has not sold

This claim is often made when the seller is chasing a downward-trending market. A seller may make this claim based upon an evaluation of, among others, the following types of information: (1) the comparables that the agent used to inform themselves, and the seller, of the value of the property; (2) the agent's knowledge and experience with sales in the neighborhood or location of the property; (3) the pricing and marketing of any competing properties; (4) whether the agent has reviewed the terms of the listing agreement with respect to marketing with the seller; (5) the agent's marketing strategy and plan; (6) whether the agent's marketing strategy and plan are in writing or are addressed in any way in written communications between the seller and agent; (7) what price reductions, if any, have been made and why; (8) any appraisals of the property that the seller has; (9) information the agent had of market conditions based upon their experience or based upon the experience of other agents in their office; (10) information the agent had received on inventory and market trends during office meetings, marketing meetings, or tours of other properties listed for sale; and (11) any opinions expressed by the agent in communications with the seller or in any marketing material, including social media posts.

Once again, the strategy used by an attorney in pursuing this type of seller's claim will be impacted by the information obtained in evaluating the facts and circumstances identified above. Depending upon its content, any writing discussing the agent's marketing strategy and plan may eliminate a claim by the seller that the marketing efforts were not consistent with the seller's understanding or expectations. Many sellers don't realize that the PRDS and C.A.R. listing agreements authorize the agent to advertise and market the property in any medium selected by the agent unless otherwise instructed, in writing, by the seller. While the agent does have discretion in choosing how to market the property, a seller may still claim that they were not advised of this clause and/or that their understanding and expectations of the marketing were different based upon discussions with the agent.

Other factors that may impact the seller's ability to pursue this type of claim include the seller's needs, wants, and motivations, any pressure the seller faced, the reasonableness of the seller's expectations regarding value, and the seller's knowledge, training, skill, and experience, if any, with respect to the sale of real estate.

Claims by sellers that they have lost the benefit of the bargain due to the buyer breaching the contract

In the vast majority of residential real estate resales, the buyer and seller have agreed that the optional liquidated damages clause is included in the Purchase Agreement; then, if the Buyer defaults, there may well be some scrutiny on the effect of the seller initialing the liquidated damages clause, especially in a declining market.

If the seller resells the property within 6 months of the buyer's default and there is a loss in sales price that is greater than the amount of money that is subject to the liquidated damages clause, the seller may well be upset that they cannot recover for all of the loss that they have suffered. A question may then arise as to why the seller agreed to set a 3% cap (or the amount actually paid into escrow, whichever is less) on the maximum amount of damages that the seller can recover. When that issue arises, the seller's attorney will be looking very closely at the actions and inactions of the seller's agent

Attorneys who pursue this type of claim often make an assessment of the seller's agent's knowledge of the market. Most of the facts and circumstances listed in the preceding section that are used to evaluate the seller's agent's knowledge of the market will apply in evaluating the agent's knowledge in this type of claim as well. In addition, other facts and circumstances that may be evaluated include (1) the seller's agent's ability to explain liquidated damages and (2) whether the seller's agent has ever handled a transaction in which the liquidated damages provision was not initialed.

As with the other types of claims detailed above, this claim may be affected by the seller's needs, wants, and motivations, any pressure the seller faced, the reasonableness of the seller's expectations regarding value, and the seller's knowledge, training, skill, and experience, if any, with respect to the sale of real estate and/or the seller's knowledge of contracts and liquidated damages clauses.

This type of claim may also be impacted by the specific purchase contract form that is used, the terms and conditions of that contract with respect to the deposit, whether the deposit was actually paid, and whether appropriate documentation was used with regard to any increased deposits.

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