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Caveat Emptor

DEFINITION

Caveat emptor is a Latin word meaning “let the buyer beware.” In the context of a real estate transaction, the doctrine of caveat emptor places responsibility to reasonably examine a property prior to purchase upon the buyer of the property.

EXPLANATION

Particularly important in real estate, caveat emptor establishes that in most property transactions it is the duty of the buyer to do their due diligence in confirming that the property in question is fit for their intended use. During the disclosure period of a property transaction, the seller is required to reveal any defects that the property has, including water damage, electrical problems, or serious structural damage. Aside from these disclosures, it is the buyer’s duty to fully inspect and research the property they intend to purchase before making a final decision.

-Exceptions to caveat emptor

A seller has a duty to disclose any important facts about the property that they are aware of. Should a seller misrepresent the specifics of the property, caveat emptor does not come into play. The following could be considered a misrepresentation of the facts about a property:

-Knowingly failing to disclose major defects that affect the value of the property.

-Giving evasive or indirect answers.

-Outright lying about the facts. (ie stating that a previously flooded property has never been flooded)

-Stigmatized Properties

A stigmatized property is a property in which there has been a murder, suicide, adultery, AIDS, cult activity, or other misfortunes and crimes. Examples include the home in which Ronald DeFeo, Jr. murdered his family (made famous by The Amityville Horror) or the house in which the Tate murders took place.

Though caveat emptor applies to most stigmas, there are certain occurrences which require disclosure on the part of the seller. These include:

-Murder and Suicide: generally within a limited period of time from the sale (3 years in California)

-Criminal activity: in most states

-Phenomena: haunting, ghost sightings, and other unexplained events

-Debt: in most states

-New Home Purchases

In the United States in recent years, the doctrine of caveat emptor is generally not considred to apply regarding the purchase of newly constructed residential housing. In these cases, an “implied warranty of fitness for a particular purpose” applies, which binds the seller to guarantee that the property in question is fit for it’s intended purpose, in this case residence. Caveat emptor applies to all other real estate sale situations except those previously stated.

-Example of caveat emptor

Mr. Finch is in the process of selling his family home. The home was flooded several years before the purchase and was fully repaired after the flood, and unbeknownst to Mr. Finch, a large infestation of termites has taken up residence in the garage. When approached by a buyer, Mr. Finch is required to disclose the fact that the house has previously been flooded. However, due to the doctrine of caveat emptor, it is the duty of a potential buyer to examine the property to discover the termites.

If the buyer failed to properly examine the property and then later attempted to sue Mr. Finch for the damages caused by the termites, the lawsuit would almost certainly fail. Unless the buyer could prove that Mr. Finch knew about the termite infestation prior to sale, caveat emptor would app

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