What does caveat emptor mean?

Buying or selling a home can be challenging enough without having to learn Latin. It can happen, though, if you see or hear a listing for a home that uses the term “caveat emptor,” which translates roughly as “let the buyer beware.” Buying a home listed as caveat emptor is similar to the idea of buying a house that’s sold as is. The seller is letting buyers know in advance that if the home turns out to need significant repairs, it’s not their problem. While this sounds daunting, understanding what this means will help you make a better decision about whether to buy a home caveat emptor.

How caveat emptor works in real estate

Caveat emptor places the responsibility on buyers to thoroughly investigate a property before committing to buy it. If an undisclosed issue comes up after the sale, the buyer can’t hold the seller responsible.

While it was the standard in the United States for many years, some states are bucking the trend to favor buyers when problems are found with a home. Some states have strict disclosure laws requiring sellers to reveal all known defects, even if they’re selling the home as is, to protect buyers in transactions.

For example, sellers in California must complete a detailed transfer disclosure statement outlining any known problems with the home. This gives buyers a more transparent view of what they’re purchasing before they commit.

When selling a home, the seller almost always has more information about the property than the buyer. This is known as “information asymmetry,” which gives the seller an advantage in how real estate transactions unfold.

This gap can leave buyers vulnerable or uncertain. One way buyers can protect themselves is with a home warranty or seller-offered warranty that covers certain repairs or appliance failures after the sale.

Which states allow caveat emptor home sales?

While all states allow caveat emptor sales, whether they will hold up in court is another thing. Many states no longer enforce caveat emptor. The short list of states that lean toward caveat emptor is:

• Alabama
• Arkansas
• Georgia
• North Dakota
• Virginia
• Wyoming

Outside of these states, caveat emptor may not hold up in court. That’s why it’s vital to understand how your state handles disclosures and buyer protections. Your real estate agent is a good resource for the norms in their market.

How to handle buying a home caveat emptor

States vary in how much detail sellers must provide buyers about the home’s condition. In caveat emptor states, buyers should be extra careful. To find out the disclosure laws in your state, visit your state’s real estate commission or licensing authority’s website, or ask your real estate agent what the norm is in the market you’re buying in.

In some cases, the seller may not fully disclose that the home needs repairs, which could lead to unpleasant surprises in the future. These surprises aren’t always small. It could be a leaking roof that was quickly patched but never fully repaired, outdated electrical systems that don’t meet building codes, or water damage hidden behind a fresh coat of paint.

Do your due diligence

If you’re the buyer, take the proper steps to learn as much as you can about the home's condition. If the seller provides a Seller's Disclosure that describes the condition of the house, carefully review it and don’t just take their word that it’s all OK. If there’s even a small amount of visible damage, assume there could be much more you don’t see – especially if it’s rot or mold.

You also want to make sure to include contingencies in your purchase agreement. An inspection contingency lets you cancel the deal if the inspector finds significant problems with the home. You also get to keep your earnest money deposit, if you made one. This gives you some breathing room to assess whether the home is a solid investment before you’re locked in.

Hire a home inspector

While you don’t have to get a home inspection, it’s always a good idea to hire a reputable housing inspector and to read their inspection report. At your inspection, have your inspector test each of the following:

• Wall outlets
• Electrical switches
• Appliances
• Sources of water
• Toilets
• Drains
• Under rugs
• Behind curtains and drapes

If something turns up, ask the inspector about it. It’s possible that a seller won’t allow you to conduct a home inspection or will limit your inspector’s ability to check the property. If you suspect an issue, don’t hesitate to talk with your real estate agent. It may be a sign that you should reconsider the purchase, or you could use this issue as leverage to bargain for a lower price.

Implied warranties

Many courts have ruled that property comes with an implied warranty when the seller puts it up for sale. The implication is that by putting the house up for sale, the seller is saying the home is fit to sell. This is especially true if the seller is the contractor who built the property.

For instance, if the seller wrongly installed an air-conditioning system and later sells the home, the buyer may have legal grounds to hold the seller accountable as long as they can prove the system was improperly sized or installed. In such cases, courts may enforce implied warranties to protect buyers from being left with costly, unfair repairs.

There are a few implied warranties used in real estate transactions, including:

• Merchantability warranty: A seller’s guarantee that a product sold will function as it’s supposed to and there is nothing significantly wrong with the product.
• Fitness for a particular purpose warranty: A law stating that a seller is making a promise to the customer that the product can be used for a specific purpose.

The bottom line: Caveat emptor is a signal for buyers to be on high alert

If you’re a buyer, especially in a state where caveat emptor is the norm, it’s important to be active and thoughtful throughout the process. Don’t hesitate to ask questions, double-check disclosures, and take your time inspecting the property. The last thing you want is to discover a major flaw a few months after closing on the home. Even if you’re legally in the right, pursuing action through the courts can be costly and time-consuming.

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