It is only in recent decades that realtors have started to routinely represent buyers as well as sellers. Consequently, it is only in recent decades that realtors have had significant financial incentive to encourage their clients to buy homes and to buy homes at a premium price. Due to the current state of the real estate market, with home prices falling after reaching all-time highs, some realtors are finding themselves in the unenviable position of being blamed by former clients for encouraging the purchase of properties that in retrospect, seem overpriced. Some realtors face clients’ scorn, others face legal action. The question is, can a realtor be blamed when a client purchases a home that is overpriced?



When a client purchases a home and it winds up falling in value, or when they purchase a home only to find out that similar properties sold at the same time for less, it is natural for he or she to look for someone to blame. That person often winds up being the realtor. In some ways, this is natural. When a realtor is representing a seller he strives to get a selling price that is as high as possible in order to please the client, to achieve a high sales rate and, naturally, to increase his own commission. But ultimately the drive to achieve a high selling price is going to be kept in check by the fact that it is better to sell a property for a decent price than to not sell it for a high price. A property that is priced too high simply might not sell and a realtor has incentive to encourage a client to compromise on sale price during negotiations if it means selling versus not selling.



When a realtor is representing a buyer, however, there is no analogous system in check. Obviously the maximum amount a buyer is willing to pay will act as a ceiling when it comes to purchase price, but besides that, a realtor has plenty of opportunity to encourage a buyer to pay as much as they are able. The more money they pay, the more money he stands to earn.

This might seem like a hypothetical problem that would not come into play in the real world of buying and selling homes, and for a long while it was. But in the past several years, with frenzied real estate markets driving home prices to all time highs and many people seeing real estate investment as a sure thing, the situation has become all to real.

The question to be answered is, is a realtor ever responsible for a choice that is ultimately made by someone else? The answer is that it probably depends on the specific actions taken by the realtor. Did he knowingly fail to share with the client information about the selling price of other, similar homes? Did he purposefully conceal the fact that homes with similar, or even greater, amenities might have sold for significantly less? In this case, it seems clear that the realtor is guilty of wrong-doing. What if he encouraged a client to bid an amount that he knew was too high? In this case, the issue of wrong-doing seems less clear. The definition of “too high" is unclear, and it can be argued that buyer placed any bids of his own free will. What about the case of a realtor who simply got caught up in the hype and encouraged a bid that was, in retrospect, inflated. This behavior might be unprofessional, but is it criminal?

The answers to these questions are as of yet unclear – the first law suits by clients against realtors are just coming to court - but every realtor would do well to consider these issues as they move forward in their careers.