What Is Caveat Emptor in Real Estate Transactions?

Caveat emptor comes from Latin and translates as “let the buyer beware.” That’s enough to strike fear in many buyers, but it’s also important to understand that in real estate, a property is sold as-is. If you purchase a property with major flaws, you’re responsible for fixing them. Of course, in the purchase agreement, you can include clauses or contingencies for inspections, but the responsibility to follow through with the research on the property falls on you. Read on to understand caveat emptor and how to protect yourself. 

What Is Caveat Emptor?

You’ve probably heard the phrase caveat emptor tossed around by Realtors, friends or colleagues. If an unknown or unexpected problem comes to light after the sale, the seller is not responsible. This takes the liability off the seller.

Historically, caveat emptor was the policy, and buyers had little protection when purchasing properties. Now, most states have laws in place to protect buyers. The seller is required to disclose all known problems with the property. The idea of caveat emptor comes in because there may still be unknown problems. For example, there may be a crack in the foundation or other hidden major issue that, without thorough inspections, the new homeowner will have to deal with. 

What’s the Difference Between Caveat Emptor and Caveat Venditor?

While caveat emptor means “let the buyer beware,” caveat venditor means “let the seller beware.” In some areas, caveat venditor takes prevalence over caveat emptor. In these cases, the buyer is protected, and the seller must take extra steps to protect themselves from liability even after the sale.

To protect yourself as a seller, it’s essential to disclose everything you know about the property and everything you’ve done with the property, including any concerns. This should include property defects, disputes and repairs. To protect yourself, focus on over-disclosing to avoid legal trouble later. 

How Does a Caveat Emptor in Real Estate Transactions Work?

Caveat emptor puts the responsibility on the buyer to perform adequate due diligence. This includes a general property inspection plus specific inspections if, for example, the property has chimneys, a pool or other features that require specialized inspectors.

You will also need to perform a title search through a title company to ensure the property is free of any liens. It can be a good idea to work with a local real estate lawyer to clarify property boundaries and access and avoid other possible disputes. 

In real life, caveat emptor puts the onus on you as the buyer to perform thorough due diligence. However, if the seller is the builder of the property, there’s an implied warranty that may protect you in case issues are discovered within a certain timeframe after purchase. In most cases, it’s better to discover and resolve the issues before closing the sale. 

Here’s an example: You sign a purchase contract on a property and then discover several issues, including a poorly functioning HVAC system and a cracked foundation. While the HVAC can be repaired for a fee, cracked foundations can be costly and dangerous. You can speak with local contractors to understand your options. Then, you can return to the negotiation table with the seller and request that they repair these issues or lower the sale price before closing the sale. 

Which States Allow Caveat Emptor?

All states allow caveat emptor sales. But in some states, caveat emptor is the prevalent home sales criterion. These include:

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

What Do Sellers Need to Disclose?

The required disclosures can vary by state. Here is a list of disclosures you have the right to ask for:

• Neighborhood nuisances
• Hazards such as lead, asbestos or other toxic substances 
• Hazards from natural disasters like flooding
• Death in the home
• Homeowners association rules and fees
• Repairs
• Water damage
• Renovations
• Missing items
• Historical district
• History of infestation of pests
• Zoning
• Grading
• Pending litigation 
• Property disputes 

How to Protect Yourself Under Caveat Emptor Transactions

As a homebuyer, you can protect yourself against caveat emptor transactions with proactive steps and thorough research. A few hours now could save you a lot in the long run. Here are the steps to take. 

1. Ask, Ask, Ask

Asking the seller or agent many questions can help you protect yourself against caveat emptor transactions. In some states, for example, a homicide or suicide in the home must only be disclosed if the seller is directly asked. Ask about all the disclosures listed above as well as details about the property’s condition, from the roof to the foundation. 

2. Read the Closing Disclosures

Reading and understanding the closing disclosures can help you protect yourself against caveat emptor transactions. These disclosures in most states should alert you to repairs, renovations or issues that may require a thorough inspection. 

3. Hire a Home Inspector

Hiring a home inspector is an essential step to help protect yourself against caveat emptor transactions. While a standard home inspection is a good start, depending on the property, you might consider other inspections such as:

• Pest inspection
• Electrical inspection
• Foundation inspection
• Roof inspection
• Mold inspection
• Chimney inspection
• Radon inspection
• Asbestos inspection
• Pool inspection
• Soil inspection
• HVAC inspection
• Plumbing inspection
• Wood damage inspection
• Septic inspection

4. Purchase a Home Warranty

Purchasing a home warranty can help you protect yourself against caveat emptor transactions. Home warranties can cover repairs and replacements for major systems and appliances for the term. This can give you peace of mind and an additional layer of protection in case your home inspection doesn’t turn up issues down the road.  

Preparing to Buy a Home

Caveat emptor real estate transactions shouldn’t scare you away from buying a home. Do your research ahead of time, come prepared with questions and be willing to spend some money on qualified professionals like home inspectors and real estate attorneys to ensure you know what you’re getting into. Owning a home is a big responsibility, but it also offers substantial benefits. Research ahead of time can help prevent major unexpected costs. Ready to buy a property? Find 23 first-time homebuyer questions to help you get started, or check out Benzinga’s complete guide to real estate investing.

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