A Duty to Disclose Home Price Cuts?

Reporting on a story out later today on the sinking Las Vegas home market I came across an interesting legal battle playing out in state court there. In 2005, about 160 home owners sued Pulte Homes for rapidly dropping prices in one of its communities. Pulte’s price slash in October of 2004 turned out to be the first warning of the market meltdown that was to come, both in Las Vegas and nationally.

The lawyer I spoke to who initiated the suit—he asked me not to disclose his name lest he be deluged with requests from other journalists and angry homeowners—likens the case to securities fraud. If a public company knows of some material change in its business, he argues, management is required to let investors know. If a company knows its going to slash prices next month, doesn’t it too have a duty to disclose that to homebuyers today?

Sure some stores, such as Target, have a policy of making customers whole on any sales after the fact. And Steve Jobs gave buyers of iPhones credit after he slashed prices. (He quite cleverly gave store credit and only $100 worth even though he cut phone prices by $200, but that’s another story).

The Pulte case is in arbitration, says Mark Marymee, a company spokesman. “Our goal was to reenergize sales,” he says. “Which helped the company and resulted in prices that reflected the changing market conditions.” The lawyer for the suing parties says he hopes to reach a settlement by February of next year. The fact that he’s not interested in taking any new clients may tell you something about the case, however.

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