Secondly Realtors® only carry out the wishes of the consumer. Alabama and Federal laws mandate what real estate agents can and can’t do. When acting as a transaction broker, the Realtor® is prohibited from disclosing certain information to the consumer they are assisting. The major exception to this rule is that disclosure MUST be made concerning all issues that could affect the health and safety of the consumer. Now contrast signing a Single Agent Agreement to insure you are represented. Under this agreement, the Realtor® MUST disclose EVERYTHING they know or learn about the property to their client. There is a big difference between being represented and not being represented, but one may never realize it unless an aftermarket dispute arises. Play it safe and hire a Realtor®. When you get sick you go to a doctor don’t you? You need to be represented by a Realtor®.
Caveat Emptor
The second most important thing a consumer needs to know is the affects of caveat emptor. This law came from Europe as part of the Common Law package that has ruled this country since its origination. Caveat emptor is a Latin phrase which means “Let the buyer beware.” This phrase is the basis of the controlling legal doctrine in the sale of used houses with material defects. It is the law in Alabama as seen in the Code of Alabama 1975, Section 6-9-142; which says, “The purchaser must look for himself as to the title and soundness of all property sold under judicial process. Actual fraud or misrepresentation by the officer or his agent may bind him personally. No covenant of warranty binds him individually unless made with that intention for a valuable consideration and in writing.” This law has been in existence since 1903 and remain effective in only three states; “Alabama, Arkansas, Virginia.” All other states have abolished the law and placed legal responsibility upon the seller to disclose any latent structural defects. It is important to know that Alabama is actually a modified caveat emptor state because in 1971 the court abolished caveat emptor in the sale of new homes which are bound by the builder to be habitable. The courts have repeatedly reaffirmed that caveat emptor is the law in used home sales.
Caveat emptor was most prominently set out by the Alabama Supreme Court in the landmark case styled “Cashion v. Ahmadi, 345 So.2d 268 (Alabama 1977).” It was further addresses in a case styled “Ray v. Montgomery, 399 So. 2d 230 (Alabama 1980).” There are many other Supreme Court cases citing caveat emptor that are as recent as 2010, and are local to Mobile. However most cases refer to the above mentioned landmark cases. A good case that illustrates the importance of caveat emptor can be seen in one of my blogs titled “Caveat Emptor—An Actual Case” which may be accessed by going to www.AlabamaRealEstateInstitute.com . In this case the buyer had a home inspection done which uncovered some defects and the buyer wanted out of the contract without giving the seller the option to make the necessary repairs. The buyer quickly learned the impact of caveat emptor and contract law.
Caveat Emptor vs. Seller Disclosure
The third most important thing a consumer needs to understand is that in a caveat emptor state, the very last thing a buyer needs to see is a seller’s disclosure statement. The senior legal counsel for the Alabama Real Estate Commission even wrote a brief comparison where he made this statement, “We all know caveat emptor, i.e. “buyer beware,” is the law in our state in the selling of used homes. Simply stated, this means that neither the seller nor the seller’s agents, unless asked, are required to disclose defects, except those which might pose a health or safety risk to the buyers. Many brokers list and sell homes relying on the principles of caveat emptor. Seller disclosure is almost the exact opposite.”
He goes on to say, “The Alabama Supreme Court has held caveat emptor to be the law in a consistent line of cases. Everyone should be on notice that there is no warranty which comes with the sale of a used home. Buyers have a chance to inspect them, and should assume the responsibility of a purchase. In most transactions there are no problems. In many, however, used houses have so many things which can be wrong; the results can be unhappy buyers. Some will end up in an attorney’s office, where talk will turn to looking for misrepresentation by the agents involved. This is because caveat emptor will not allow a successful lawsuit, but misrepresentation will. Besides, misrepresentation can trigger an award for punitive damages. Typically, a plaintiff’s attorney will file the lawsuit alleging negligence in order to get recovery from a possible E & O claim, and will allege misrepresentation. As the suit develops, a decision will be made about which to really pursue. That decision will usually be driven by which nets the most money.”
Seller’s disclosure seeks to avoid some of the problem of caveat emptor by requiring disclosure from the best source of information, the sellers. Seller disclosures seem very practical and an innocent way of bringing truthful information to surface. They are widely used in other states, but caveat emptor as we know it is not the law in other states. The other states have laws requiring the seller’s disclosure so that prospective buyers can know all the facts prior to making a decision to purchase. A common problem that arises in those states is after closing, the buyer begins to feel the seller wasn’t truthful in giving a complete disclosure.”
As a licensed agent in Alabama, when representing my buyer as a “Buyer’s Agent” I don’t want my client to even look at a seller’s disclosure form that has been completed by the seller. The reason is very simple. Once we see, hear, or read something it is embedded in our minds forever. Something may be explained away but your conscience recalls what has been seen and questions it or accepts it as factual. Since it is the buyer’s responsibility to inspect all aspects of a home before they buy it, I want to help my clients in making sure they have all the proper inspections performed. I don’t want them to rely on what anyone has said because if they do, and a serious defect arises after closing, unless they have had the proper inspections done, they will have no legal recourse. That is they will lose a court case citing caveat emptor.
I understand why some agencies want to use seller’s disclosures in Alabama. I fully understand the responsibility that caveat emptor heaps upon me when I represent a buyer. I also understand that some agencies don’t have a choice because they are a part of a national franchise. Franchises operating in multiple states might pass down a company policy mandating the use of seller’s disclosure forms in all their offices in an attempt to protect their buyer’s and to also eliminate some of their own liability. For most of those states it’s not a problem, but when they have a branch office in one of the three caveat emptor states, it conflicts the law and places the agent in a dangerous situation.
I like the fact that Alabama is a caveat emptor state because we know exactly what the buyer needs to do to protect themselves and we don’t have to wonder if the seller is telling the truth or not. As a buyer’s agent I always recommend to the buyer that they do their due diligence in inspecting every aspect of a property and then I assist them in the process. When representing the seller, I always ask if there are any defects that could be harmful to the buyer’s health and safety. If not, I instruct them not to tell me anything about the property that they don’t want me to tell the world about. This puts me in a position to honestly answer direct questions from a prospective buyer so that I don’t harm the seller, and I don’t tell the buyer something they can rely on. The buyer must remember that it is their responsibility to inspect for themselves.
It is very important that all consumers fully understand the issues we have just discussed. If you have questions contact your Realtor® and ask them to explain the law so that you can know for sure what you need to do or not do. You can always contact me for an unbiased explanation since I am strictly a real estate educator and no longer list and sell. My primary concern is educating real estate practitioners and consumers who buy or sell real estate in Alabama.
Should you have specific questions concerning various issues, please let me know and I’ll research the answer for you. I also want to encourage you to subscribe to our “News & Updates” weekly report so you can stay abreast of issues that might affect you when buying or selling real estate. If you haven’t visited my website, please go to www.AlabamaRealEstateInstitute.com and view previous articles.