A reader asks, “Hey Chris, during the good old days 2000-06, did you ever steer a prospective buyer away from a property that based on their income, you thought they couldn’t afford even though the bank was willing to lend it? Just curious if you think realtors should take some blame here.”

The answer is no. As a real estate lawyer, I considered at least part of my role to be a quasi-financial advisor and no one, not even mortgage traders! left any closing I conducted without having spent at least an hour reviewing and receiving an explanation of the loan documents: what the total amount borrowed would be, the monthly payment, the possible increase in that payment, if the loan was a variable rate, etc. Even then, I didn’t inquire into my client’s job security, other financial obligations or his mental stability. With the exception of the last, I considered those matters to be between the borrower and his bank.

And in those days the lenders did inquire into such matters. I didn’t realize that, in later years, in other parts of the country, buyers (often “represented” by a bank’s lawyer, not their own) were spending as little as 15 minutes at closings. In Greenwich, at least, that never happened – to this day, agents foolish enough to show up at the start of a closing will cool their heels for a long, long time while attorneys like Tom Ward or Jeremy Kaye review the docs with their clients. The next time you hear a real estate agent criticizing Fairfield County’s use of attorneys in real estate transactions, you might consider whose interest is being served by those lawyers and why real estate agents might resent their presence.

But as an agent, did I ever caution a buyer against purchasing a house because of doubts about his ability to buy it? Nope. If someone comes to my office and says he can afford a $10 million house I assume that he is financially sophisticated enough to know what he can afford and that any lender who’s going to put out that kind of money is going to thoroughly vet the applicant. That may be naive, especially in light of what’s been revealed about lending practices in the past months, but it’s not my role to screen buyers. I certainly don’t want to waste my time looking at huge mansions with someone not qualified to buy a bicycle but digging into a person’s finances isn’t my job. I did, and do, try my best to get my clients the best house for their money and even some of my high-end clients will attest that they spent more time than they wanted to with me checking out $5 million houses that I thought were great buys when they really wanted a $10 million house (I like to think that they eventually discover that some $10 million houses are no better and worth no more than some $5 million homes on the market).

I have, to my memory, never urged a client to stretch beyond their stated comfort level to buy a house. Again, I consider clients to be financially sophisticated, in Greenwich, anyway, and I’m not ever going to advise them to abandon what their common sense tells them to do.

Finally, remember that, as of now, only 3% of existing mortgages are in default – I suspect the percentage in Greenwich is even lower. Like the Spanish Inquisition, no one expected the collapse of Bear Sterns and Lehman Brothers so the folks buying here were well-heeled, well educated people fully capable of making financial decisions without the assistance of what in many cases is a stranger. I suspect that, were I to pry too deeply into the wallet of someone I’d just met the day before, I’d lose a client, pronto. We’re not selling tract houses to illegal immigrants here and I’ve never seen the need to treat my clients as though they were fresh from picking cabbages.

So do we agents share some of the blame? I don’t think so – you, of course, are free to disagree and I’d be glad to receive your thoughts on the subject – I may very well be blinding myself to something obvious so that I can sleep at night.

Further thoughts: (updated)
If real estate agents offered financial advice, would buyers listen? Many would not. Check out some of the comments on this blog and you’ll see many contemptuous entries that basically call this author a moron who should opine on real estate and nothing else. To these people, once one becomes a real estate agent all prior experience and training are wiped out. One guy, a lawyer (a group that, according to polls, ranks just above used car salesmen and below real estate agents in public esteem) first insults my education and knowledge and then cautions me to stick to writing about things I know something about, like granite counters. Do you think such a man would listen if I warned him that he was getting in over his head on a purchase? Whether I would tolerate him as a client is another matter, but for now, I’ll stick to advising people on the relative value of houses, and nothing else. What I post on this blog, however, is my business.

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  1. Anonymous

    I think the real problem is that the ranks of real estate agents are cluttered with too many people who are not serious about their profession. Maybe the current slump in the market will shake out your ranks.

    To find a smart Realtor is a great thing and that is why I have used the same person on every real estate transaction I have ever done poersonally and steered 4 other transactions his way. At the end of the day, most people rely solely on their Realtor’s assessment of value which is a lot of responsibility given that a home is usually the largest asset most people have.

    As for lawyers, well I have used one of the lawyers you mentioned with mixed results. But in deference to your wish not to smear or defame people by name, I will not elaborate.

    -Stanwich

  2. Anonymous

    I agree with some of your post but I think you are right when you say that Greenwich is different. The original question I thought was very provocative — basically asking whether realtors, mortgage brokers, appraisers, etc. were complicit with the banks in looking the other way when making loans to obviously unqualified people. Did they look the other way? Of course they did — you admit it yourself (“If I pried too deeply into the wallet…I’d lose a client, pronto.”) But Greenwich is one of a handful of towns across the county where we’re talking about $10m houses being purchased by hedge fund guys, so, yes, they should know better and yes, a realtor can reasonably expect them to be able to afford it. But I don’t think that absolves you (realtors, etc.) of being complicit — as a lawyer, you know what the law says about willful blindness, so when you say you assumed someone vetted the candidate so you stayed out of it and that you were fearful of losing a client if got too nosy (and that most realtors hate that lawyers spend so much time reviewing documents), that to me shows some awareness of what was really going on. You certainly have no legal duty to get involved, but I think you may have (you meaning all realtors) an ethical or moral duty to inquire and raise your hand if there is a potential problem. I remember buying a house not too long ago and the broker said, let me call “my appraiser” so we get to the “right number.” Did I go along with it, of course. Did I know there was some fuzzy math going on? Sure.

    As to your last question, “If real estate agents offered financial advice, would buyers listen?” I think that’s well beside the point. That may help you (realtors, appraisers, etc.) sleep better at night, but it’s not fair to shift the blame to an unsophisticated buyer (again, probably not so much in Greenwich). And you know, some of those buyers might actually not only listen, they may truly appreciate your seasoned advice. You obviously would have to use a good amount of tact, but many young families buying first homes have no idea what they are getting themselves into, and the more advice, the better.

  3. Anonymous

    It really depends on how you perceive the "job" of real estate agent (or "Realtor" with a capital R, which makes me laugh when I see its capitalized pompousness. I am an analyst, not an Analyst, good grief).

    Is the real estate agent more like a car salesman, who shows the car, takes you for a test drive, and offers suggestions for extras and financing packages?

    Or are you more like a doctor you see when you are in need, who discusses your symptoms and potential diagnoses and outcomes, and refers you to the specialists you may need?

    If the former, then no, you are under no obligation to take the customer's personal finances or other things into account.

    If the latter, then yes, you are under some obligation to tell the client the positives and negatives, under various scenarios perhaps, of purchasing a house for $X dollars in Y neighborhood.

    Personally, I believe the job of real estate agent can fall along this spectrum of car salesman –> doctor, and it is up to the agent to place him/herself in a position closest to doctor (high value-add) than closest to car sales (low value-add).

    No offense to any car salesman out there.

    Current Equity Analyst

  4. Chris Fountain

    I see my role as somewhere in between. Clients rely upon my expertise in real estate and I owe them a duty to be as well informed as I can, to opine on relative values, steer them to reputable home inspectors, rather than someone I know will turn a blind eye to defects,and so on. I like to think that my instinctual urge to protect people would kick in and force me to stop a financially unsophisticated couple from getting in over their heads but (a) I only practice in Greenwich, where such people are rare and (b) I’m aware that I am a flawed human being so, while I know how I would expect to act and am confident that I would, I can’t declare with absolute certainty in a situation I haven’t encountered.
    But granite counters? You can count on me.

  5. ACF

    Not only is “Realtor” capitalized, it requires the ® symbol as well. It’s a neologism dating from the ‘twenties, when there was vogue to add dignity to seemingly mundane occupations by giving them gussied-up names. That decade also gave us “mortician” for undertaker and, my favorite, “cosmetologist,” which is not someone who gazes at the stars but, rather, zits and age spots.

  6. Chris Fountain

    Yes, there really are folks out there who blow there gasket when realtor isn’t capitalized and properly trademarked. Personally, I don’t think I’ll follow their dictates until Horse Thief is a recognized brand name. Of course, there was once “Bear Sterns” but it, alas, is no longer with us to set an example.