Caveat Emptor Laws

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 Caveat Emptor Laws

Real estate and property law involve buying and selling property. Part of buying and selling property requires disclosure, which is the action of the seller demonstrating any defects the property has, such as electrical issues or water damage.

In addition to disclosures from the seller, a buyer must inspect and examine the property they are interested in buying. This notifies them about any potential defects unknown to the seller. A person who fails to conduct a proper examination may not have a legal alternative to reverse the real estate transaction.

What Are Disclosures In Real Estate? What Are Property Owners Required To Disclose?

Real estate regulation requires that the owner disclose certain information when selling property. This information includes any material defects and any problems with the property. In several states, the owner may be held legally responsible if they fail to disclose this info to the buyer upfront. Additionally, the seller is legally prohibited from concealing any known material defects from the buyer. What constitutes a material defect can vary from state to state.

Generally speaking, a material defect is any fact that may have a substantial and reasonable impact on the market value of the property. A material defect can also be any situation that poses an unreasonable risk to other individuals.

In addition to disclosing any material defects, the following must also be disclosed:

  • Any zoning issues;
  • Environmental hazards; and
  • Easement violations.

It is essential to comment that property owners are only required to disclose any information within their knowledge. This means that sellers are not required to employ an inspector to uncover any issues that the property owner did not know existed. Nonetheless, if a seller does employ an inspector and that inspector then uncovers multiple defects, the seller is legally bound to reveal those defects to any potential purchasers. Further, a seller can only be held responsible for failing to disclose defects if the buyer exercised proper diligence when inspecting the property’s condition.

A buyer may not lawfully later sue the seller for material defects they should have recognized during a prior inspection. And, buyers may not later sue the seller if they were aware of the flaws before completing the sales transaction. Other parties liable for disclosing any defects, material or otherwise, include seller’s agents or brokers. These parties must reveal all known material defects to the buyer and any limitation on the ability of the seller to complete the real estate transaction.

What Does Caveat Emptor Mean?

Caveat emptor is Latin for “let the buyer beware.” In real estate law, the property buyer has the burden of exercising proper care when buying real property. This means that the buyer must conduct the appropriate research and caution when selecting the property before the sale.

Who Does This Rule Protect?

It safeguards the seller from liability when a buyer has remorse for buying something they failed to detect because they did not make any effort to look at the property before purchasing it.

Does This Rule Apply to New Home Purchases?

Typically, caveat emptor applies only to forced sales, “as is” sales, and sheriff’s sales. Whether the rule of law also applies to new home purchases hinges on the jurisdiction.

Does a Seller Have to Inform Me If a Property Is Stigmatized?

No, unless it will noticeably impact the value of the property.

A stigmatized property is a real estate where something typically considered unpleasant occurred, such as:

  • Suicide
  • Murder
  • Cult activity
  • Phenomena
  • Criminal activity
  • A sex offender lived in the residence
  • The previous owner had AIDS/HIV

What Is Stigmatized Property?

Stigmatized property is a home or apartment where there has been a suicide, murder, cult activity, or other accidents and criminalities. Examples include Nicole Simpson’s house, which sold for much less than desired. Homes that Christie Brinkley’s ex-husband had affairs in had to be taken off the market.

The prevailing rule in property buying and selling is caveat emptor – let the buyer beware. Also, a seller cannot be held accountable for failing to do something. Based on these standard legal rules, sellers do not have to inform buyers whether the property is stigmatized.

Are There Any Exceptions To Caveat Emptor?

The exception to this rule is when the seller makes a “misrepresentation” or lies about an aspect of the house. A seller must reply truthfully about essential facts and not aim to deceive the buyer. Even silence or evasive answers can constitute misrepresentation if an average buyer has been misled.

The next exception to the general rules is that a seller must disclose a vital fact affecting the property’s price where the buyer would not have thought of that fact. For instance, a buyer must notify a seller that a house is haunted in some states because a reasonably prudent buyer could not be expected to consider this possibility.

However, sellers do not have to inform buyers if earlier owners had AIDS or if registered sex offenders live nearby. The buyer is responsible for finding out this information. Ultimately, a seller should use common sense and reveal details that materially affect the property’s price and that the buyer wouldn’t have been expected to ask about.

What Types of Stigmas Must Be Disclosed?

The seller must disclose stigmas that could affect the property’s value.

These stigmas can include, but are not limited to:

  • Phenomena: Haunting, ghost sightings, and other unexplained occurrences that could impact the property’s value must be disclosed.
  • Murder/Suicide: Some states require that murders and suicides on the property be disclosed to the buyers. Many of these laws have a time limit, though. For instance, California only demands that the deaths be announced if they took place within the last three years.
  • Other Criminal Activity: Most states demand that criminal activity be disclosed, such as drug dealing or prostitution.

Should My Agent Disclose The History of My Property?

The answer will be on a state-by-state basis. If your property is in California, you and your real estate agent must disclose murders or suicides. In Tennessee, though, no such duty exists. In a state which does not require a stigmatized property to be disclosed, a seller’s agent can be liable for breaking the fiduciary relationship if the agent discloses the information without your permission.

What Should I Do if I Bought Property and Discover It Is Stigmatized?

You may want to consult an attorney. In a lawsuit against the seller, you may be entitled to compensation for any necessary repairs. An experienced property lawyer can advise you of your rights and represent you in court.

Is It Possible for Caveat Emptor to Not Apply?

Yes. A seller does have a duty to reveal significant facts about the property truthfully. Whenever the seller lies or misrepresents facts about a property, then caveat emptor no longer applies.

What Constitutes Misrepresentation?

A seller can misrepresent facts about a property by:

  • Staying silent when they are required to say something
  • Not telling the truth
  • Giving evasive answers

Do I Need an Attorney to Assist Me With Caveat Emptor Laws?

Real Estate and Property Law includes an expansive range of topics, such as purchasing, selling, utilizing, and leasing residential or commercial property. Typical disputes involve establishing property title and boundary lines, landlord and tenant disputes, and zoning/land use issues.

Real estate and property law also comprise the financing elements, such as mortgages, liens, and foreclosures. Suppose you have purchased or are thinking about purchasing real estate property, whether a home, commercial building or land. In that case, you may want to consult with a real estate lawyer to protect yourself from any unforeseen liabilities attached to the property.


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