Caveat Emptor: What Does It Mean In Real Estate?
Andrew Dehan5-minute read
December 28, 2020
They say Latin is a dead language, yet it turns up in all sorts of places. You may hear quid pro quo on the news or may be annoyed ad nauseum by political discussions or maybe your job grants you a per diem, et cetera.
In real estate, one phrase you’ll run into is caveat emptor. Buying or selling a home can be confusing enough on its own, before bringing in a different language. Here we’ll break down what caveat emptor means for you.
Caveat Emptor Meaning
Caveat emptor is a Latin phrase that translates to “let the buyer beware” in English. 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. However, in most states, sellers are required to disclose all known problems with the property. Where caveat emptor was once the standard nationally, that trend has been shifting over the past several decades.
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. Err on the side of over-disclosing, as you would rather reveal too much than get in legal trouble down the line.
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What Is The Purpose Of The Caveat Emptor Principle 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, that is no longer the case.
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.
Many courts have ruled the property comes with an implied warranty when the seller put 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. If you were to hire a contractor that could prove the system was wrongly installed or ill-sized, you may be able to convince the court to rule in your favor.
What Risks Are Involved In Real Estate Transactions Under Caveat Emptor?
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.
If you’re the buyer, taking the proper steps to ensure you’re aware of all property defects is essential. Read through and analyze the seller’s disclosures. Look through the areas 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 reputable housing inspector and read the inspection report. At your inspection, test each wall outlet, all the electrical switches and every appliance coming with the home. Test all sources of water, toilets and drains. 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. If you’re still suspect of an issue, talk with your real estate agent. 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:
- North Dakota
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 agent about what risk you could be taking on before buying.
Protections For Home Buyers Against Caveat Emptor Transactions
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 where the seller lists 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.
Other than a Closing Disclosure, the only thing protecting you is yourself. Ask the seller or their agent lots of questions and record the answers. Ask about the condition of the roof. Ask if the basement has ever flooded or if there are problems with mold. Especially in areas where caveat emptor is typical, buyers must advocate for themselves.
The Bottom Line
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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