Heath's Blog


Are buyer agents liable?

If a buyer agent has the buyer's interest in mind, does the buyer agent become liable if the buyer gets foreclosed on because of a declining market?  As everyone points fingers in every direction but their own, clients of exclusive buyer agents are starting to consider the role their agent played in current real estate market problems.  Did the buyer agent advise the client adequately enough about possible market turns?

One of the new topics now circulating is how much agents knew about their "client" when they watched the closing occur on a property that the buyer could marginally afford.  If the agent knew the market had a probability of turning down, and they said nothing to the buyer, did the agent have the buyer's interest in their mind at the closing - or just the paycheck?  And, is a verbal warning of a possible market change enough care and/or notice?

"Everyone" knows that real estate operates in cycles.  In the past it was at a ten year rate more or less.  But with the unusual 2000-2005 record years of appreciation, people in the real estate profession were as caught up in the appreciating market as buyers and sellers were.  It became sort of humorous when the NAR economists would preface their statistical reports with disclaimers of unusual data, only because there seemed to be no end in sight.

Buyers, sellers, brokers, agents, economists, builders, lenders, originators, investors, specuators, inspectors, title companies, and on and on, all wanted the market to rise endlessly.  However, who was in the best position to advise buyers about their particular transaction?  Buyer agents had become the latest, greatest advisors for real estate enthusiasts.  Buyers were (and still are) told they need a buyer agent to "protect" them.  But do buyer agents provide any more protection when it comes to changes in the market than another type of agents does?  And, how much of the advice a buyer agent gives has to do with market conditions, and how much has to do with a specific property and the purchase process?

One of the preliminary roles of any agent is to qualify customers.  Why spend time looking at million dollar homes when the buyer can only borrow a hundred thousand?  It is more efficient to say, "Here is a list of properties that you can buy," rather than the opposite.  So if buyer agents had pre-qualified their cients, why are there so many foreclosures?  Did so many of the lenders miss the qualifying step of the lending process?  Probably not.  But the buyer agents were at least as philanthropic with their qualifying criteria as lenders were.  And if a lender qualified the client, who is the agent to say no to a deal?   Except for the idea that the buyer agent is supposed to be thinking of their customer - not the deal.

This is a new conundrum for buyer brokers and their agents.  It will only take one lawyer (start the Jaws Music) to start a new feeding frenzy on buyer agents.  Maybe it will become a movie, "The buyer agent who knew too much."  And is it really the responsibility of a buyer agent to caution a buyer about market changes?  Hmmm, sounds like a new disclosure coming.  Of course, all agents really do for their "huge" income is show houses and cash checks.  LOL!!


Heath Coker, Associate Broker
Robert Paul Properties
www.CapeGroup.com / capegroup@capegroup.com
508-274-5613  Licensed in MA
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Good question but I don't qualify buyers for the loans.  I let the lenders do that and then I try to find a home the buyer will be comfortable with.  One of things I counsel them about is that I have no control of the market and can't predict where it is going.  Knock on wood I have not had any foreclosures yet. 
Posted by Gene Allen, Realty Consultant for Cary Real Estate (Fathom Realty) over 12 years ago

As agents, we are responsible to our clients but not for our clients.  There is a big difference!  You can advise them in real estate but it is incumbent upon the individual to make the choice on what they are going to do.  That is why they sign the contract and loan paperwork and not the agent.  I also send my buyers to a loan officer to qualify them!




Posted by Michael Johnson, Metro Charleston SC (Carolina One Real Estate) over 12 years ago
Both good notes.  To and for are definately different.  I may initiate some form of disclosure in my office that indicates all that more clearly in writing.  (so I don't have to knock on wood.)
Posted by Associate Broker Falmouth MA Cape Cod Heath Coker, Heath Coker Robert Paul Properties Falmouth MA (http://www.CapeGroup.com & http://www.REindex.com) over 12 years ago

Why would buyer agents be responsible for their buyer's future foreclosures or financial irresponsibility once their transaction is over and their contract to be a "buyer's agent" is over? A buyer agent works for their buyer exclusively to represent them in a home purchase, to be fair, loyal to the buyer, to give disclosure, obedience to lawful instruction and accountability. The buyer's agent puts their clients interest first and helps negotiate for the best fair price and terms for their buyer client. (Right from the Buyers agent disclosure statement).

 I could understand a disclosure saying that once the purchase is over, the buyers agent (Buyers agency is something you (Heath) dont practice correct?) is not responsible for their buyers future foreclosure or financial irresponsiblity or market changes?! I do agree that some agents only concern it seems is to make a commission! Thats is the reason that agents do what they do after all!


Steve White, E-Pro, ABR


Posted by Stephen D White, E-Pro, ABR Cape Cod Real Estate (SDW Realty of Cape Cod) over 12 years ago

There is nothing current that indicates "...buyer agents be responsible for their buyer's future foreclosures...," but it is being discussed as owners grasp at ways to save their property.  I know you haven't been in business long, Steve, but you probably have errors and omissions insurance.  If a claim is made, it will be after the sale.  Any market advice and statements made by a buyer agent can be cause.  Your concept of a disclosure that "once the purchase is over..." is the antithesis of why buyers use a buyers agent - to make sure their purchase is a solid one to start with. 

The rise of buyer agents started before you got into the business and you see it as more common than some others do.  I had an hour conversation with a buyer agent in Florida today who uses MLS listings to generate his customers.  This practice was unheard of before the Internet.  So many changes have occured in the last ten years that many newer agents aren't aware of.  The liability of the buyer agent in this type of down market is untested and one of those changes.

And you are mistaken (again), Steve, we list property and we work as exclusive buyer agents at Cape Group.  In some cases, I have advised buyer clients that if they paid "x" for a property, I may not be able to sell it in the next year if the market and/or their financial situation changes negatively.

(Also, in the future, Steve, please keep your comments to things you know about.  How I run my office should not be on your list.  Your comments always seem to border on antagonistic.)


Posted by Associate Broker Falmouth MA Cape Cod Heath Coker, Heath Coker Robert Paul Properties Falmouth MA (http://www.CapeGroup.com & http://www.REindex.com) over 12 years ago
Heath~ Looks to me like an opportunity for one more disclosure form for Agents to protect themselves and their brokerage. Pretty soon our Earnest Money Agreements are going to be as thich as a set of Loan Docs that disclaim about everything.
Posted by Doug Fritchie (DOUG FRITCHIE-Silver Legacy Properties,Inc.) over 12 years ago

I do not qualify the buyer, the lender does. 

I've dealt with many an investor who wants to purchase properties.  I give my opinion (good or bad).  Sometimes they listen, sometimes they don't.  When they choose to go against my advise, I still write the contract. 

Buyers buy based on what the lender will lend.  Then it becomes the buyers responsibility to determine what they can and cannot afford.  Now I give my opinion and help explain the terms, but I am not a banker, so I talk in general.  They need to talk to a lender (or attorney) for the details. 

I as a Buyers agent do not feel bad or responsible. 

Posted by Chad Baird (Re/Max Spirit) over 12 years ago

Yep. one more disclosure on the way...


Posted by Associate Broker Falmouth MA Cape Cod Heath Coker, Heath Coker Robert Paul Properties Falmouth MA (http://www.CapeGroup.com & http://www.REindex.com) over 12 years ago
At the end of the day, you can get sued for anything
Posted by S J over 12 years ago
When things go badly, people look for others to blame.  However, there is a difference between defrauding a client and becoming a guarantor of their investment.  There were agents who did shady things.  There were crooked mortgage brokers, banks, buyers, sellers, etc.  I understand that people are upset about the market dipping, but that was foreseeable.  No one can protect you from a natural business cycle and no one should have to tell you that it happens.
Posted by Geoff Scowcroft (Coldwell Banker) over 12 years ago