Prepared By Joshua N. Switzer
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The saying used to be "buyer beware" or "caveat emptor". This saying reflected the principle that a buyer of real estate took the risk of any defects in the property unless the seller specifically agreed otherwise. The onus was on the buyer to be satisfied regarding the quality of the property before purchasing the property. If the buyer was not satisfied with the quality of the property, the buyers remedy was not to buy the property.
This principle has been eroded over the years. The erosion of the principle benefits buyers at the expense of sellers.
The principle has been eroded in several ways. First, standard form real estate purchase and sale contracts now contain representations by the seller which, if untrue or inaccurate, result in liability to the seller. For example, a common representation is that the property has not been insulated with urea formaldehyde.
Second, disclosure statements have become common. These statements are signed by the seller and contain many representations about the property. The statements are provided to the realtors involved and to the buyer. The statements may or may not be directly incorporated into the real estate purchase contract. If the statements are untrue or inaccurate, the seller may be liable to the buyer.
Third, the courts have been more and more active in protecting the buyer as discussed below.
The main area of controversy concerns "latent defects". These are defects that are not readily visible upon inspection. Increasingly, the courts have held sellers responsible for such defects. Where a seller knows of a defect and takes steps to conceal the defect - making it effectively "latent", the courts have found the seller liable for the defect. In some cases, the courts have held that if a seller knows of a latent defect, the defect must be disclosed to the buyer. A failure to disclose a latent defect could lead to liability on the part of the seller. More controversial is the case of a latent defect where the seller does not know of the defect. Could the seller be liable for such a defect?
There are ways that a seller can protect against inadvertent liability for latent and other defects. The main course for protection is through the insertion of appropriate language in the sale agreement.
We strongly recommend that sellers consult with their lawyer before signing a listing agreement and before signing an agreement to sell their home. For more information, please contact us.