What does caveat emptor mean in real estate?

Buying or selling a home can be confusing enough on its own, before introducing an unfamiliar phrase. One phrase you may run into is “caveat emptor.” Here we’ll break down what caveat emptor means in real estate transactions and the risks that can accompany those home sales.

What is caveat emptor?

Caveat emptor is a Latin phrase that translates to “let the buyer beware.” In real estate, it’s similar to the idea of buying a house that’s sold as is. Caveat emptor means the buyer gets what they get, even if it has major flaws. If unknown problems turn up after the sale, the seller is not responsible for them, leaving the buyer on the hook.

It takes the liability off the seller, letting the buyer know they’re purchasing the property at their own discretion.

Caveat emptor vs. caveat venditor

The opposite of caveat emptor is caveat venditor, or “let the seller beware.” In some cases, caveat venditor has become more prevalent than caveat emptor. The trend in court in some states is focusing on buyer protection, so the seller may need to take extra steps to protect themselves.

If you’re the seller, protecting yourself starts with disclosing everything you’ve done with the property or any property concerns. This includes repairs done, property defects or potential property disputes. It’s better to over-disclose, as you would rather reveal too much than get in legal trouble down the line.

How caveat emptor works in real estate

Caveat emptor means buyers must do their due diligence when purchasing real estate. If a problem they were unaware of comes up after they bought the property, they are responsible for it. While it was the standard in the U.S. for many years, some states are bucking the trend in favor of buyers.

In many sales, the seller has more information about the property. In economics, this is referred to as “information asymmetry.” Since the seller knows the condition of the property better than the buyer, courts have started to side with buyers.

Navigating caveat emptor transactions

Some states are more lenient on what sellers must disclose than others. In areas where caveat emptor is still the standard, buyers need to be extra careful. Sellers’ failures to disclose issues on a property could lead to bad surprises in the future.

Do your due diligence

If you’re the buyer, taking the proper steps to ensure you’re aware of all property defects is essential. If a seller provides a Seller’s Disclosure, look through the areas where they note defects or damage with your own eyes. If there’s a small amount of visible damage, assume there could be much more damage out of sight, especially if it’s rot or mold.

Hire a home inspector

Hire a reputable housing inspector and read the inspection report. At your inspection, have your inspector test each of the following:

• Wall outlets
• Electrical switches
• Appliances
• Sources of water
• Toilets
• Drains

Also have them move rugs and wall hangings out of the way to see if they’re covering up anything unsightly.

If something turns up, ask the inspector about it. See what they recommend. It’s possible that a seller won’t allow you to conduct a home inspection or limits your inspector’s ability to check the full property. If you suspect an issue, 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.

Which states allow caveat emptor home sales?

While all states allow caveat emptor sales, whether they will hold up is another thing. Many states no longer enforce caveat emptor in all cases. There’s an overall trend in residential real estate moving toward protecting the buyer. 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. Each state has different laws, so do some research and talk with your real estate agent about what risk you could be taking on before buying.

Protection against caveat emptor transactions

In areas where caveat emptor is in place, buyers must advocate for themselves. In other instances, buyers can find additional protection with implied warranties and closing disclosures. 

Implied warranties

Many courts have ruled the 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, then sold you the property, the seller could be on the hook for it. Assuming that you could prove the system was wrongly installed or ill-sized, you may be able to convince the court to rule in your favor.

There are a few implied warranties that are 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.

A closing disclosure

The most common protection for homebuyers is the Closing Disclosure. In fact, it’s also a protection for home sellers. A Closing Disclosure is a legal document that the seller uses to list known damage, defects, repairs and concerns with the home.

In states where caveat emptor is more the norm, a Closing Disclosure is an essential document to notify the buyer of risks. If caveat venditor (seller beware) is more prevalent, fully disclosing all issues with a home will more likely protect the seller in court.

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

Caveat emptor is the principle that buyers must look out for themselves. Proper precaution must be taken to be certain there are no major defects in the property. Even with more states moving away from caveat emptor, buyers must do their due diligence before buying a property.

If you’re a buyer, especially in a state where caveat emptor is the norm, you need to actively investigate the property and question the seller. Be meticulous. Buying a home is a huge purchase. The last thing you want is to discover a major flaw a few months after closing on the home. Even if you’re in the right legally, bringing the seller to court is expensive and time-consuming.

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