This is a topic I try to talk about in every class I teach because it is the most important and the least understood law. I intentionally try to scare real estate agents to get them to understand the importance of the law and the effects it has on people buying real estate in Alabama. Today I will tell you how to see the law as it is written, disclose the other states that have the same law, and explain the dangers and remedies associated with caveat emptor.
Caveat Emptor is the law in Alabama…..
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.
Real estate agents were taught when completing their educational requirements to get their license that caveat emptor is a Latin term (kaevi:a:t emptor) for “Let the buyer beware.” Generally, caveat emptor is the property law principle that controls the sale of real property after the date of closing, but may also apply to sales of other goods. Under the principles of caveat emptor, the buyer cannot recover damages from the seller for defects on a property that rendered the property unfit for ordinary purposes. The only exception is if the seller actively concealed latent defects (hidden defects that are apt to surface later) or otherwise made material misrepresentations amounting to fraud. Even this exception is difficult to prove and I’ll say more about that later in this article.
History of Caveat Emptor…….
Before statutory law, the buyer had no express warranty ensuring the quality of goods. Common law requires that goods must be “fit for the particular purpose” and of “merchantable quality,” but this implied warranty can be difficult to enforce. Hence, buyers are advised to be cautious. Consumers buying real property should do their due diligence to have the property thoroughly inspected by a professional inspector that specializes in the area of concern. Home inspectors can determine most potential problems but if the property was suspected to possibly have a mold issue, then hire a company that specializes in mold to inspect the property. They have the specialized equipment needed for the proper test.
Alabama is Different than most other States….
I can’t say for sure but based on my research, the only states that are still caveat emptor states are Virginia, Arkansas, and Alabama. When a person buys real estate in these three states, they need to fully understand it is their responsibility to make sure they know what they’re getting, that it’s in good condition and works properly. When the buyer does his due diligence to have the property inspected, their legal rights remain in place after closing should some latent structural defect appear. If a buyer elects not to have the proper inspection done, closes on the transaction and then a latent structural defect appears and the buyer sues for damages; numerous Supreme Court cases have ruled in favor of the seller and stated caveat emptor; the buyer is responsibility to inspect the property prior to purchase.
Seller’s Disclosure verses Caveat Emptor….
In the states that are not caveat emptor states, their judicial system places much responsibility on the seller to disclose defects and pass on knowledge they have about the home they are selling. This disclosure is typically performed on a two-three page document which the seller answers questions about everything dealing with the property. After all, who knows the property better than the people who have been living there for several years? The problem with this type theory is one of common sense. Do you really expect a seller to disclose every little thing that is wrong with the property he wants to sell? The courts are full of law-suits where buyers are suing sellers for lying on the disclosure form. At least in the caveat emptor states, we know exactly whose responsibility it is to inspect a property to find those hidden defects. When inspections are done and the buyer closes on the sale; then a defect rear its head, the buyer has a legal recourse. The buyer won’t sue the seller, unless the seller intentionally concealed pertinent information about the property that could affect one’s health and safety; the buyer would sue the inspector. Such suits where inspections have been done, Alabama Supreme Court has generally ruled in favor of the buyer.
According to an article written Charles Sowell, General Counsel for the Alabama Real Estate Commission, many brokers list and sell homes relying on the principles of caveat emptor. Seller’s Disclosure is almost the exact opposite. The article states that caveat emptor will not allow a successful lawsuit but misrepresentation will. This is the reason attorney’s file a suit for misrepresentation, and/or negligence so they can possibly get a recovery from an E & O claim. One of the dangers of using a seller’s disclosure in a caveat emptor state is if a buyer relies on the information provided by the seller, and doesn’t have the proper inspections done; in this case, the buyer loses his legal rights in the courts.
Exempt from Caveat Emptor……
New home that have never been slept in are exempt from the caveat emptor principle. A new home is guaranteed by the builder to be in good working order, it is suitable to live in, and it has merchantable quality. There is a key point to this exemption. A new home cannot have been slept in. If someone buys a new home and never moves into the house but sleep there one night, and then sells the home to someone else, it is no longer guaranteed by the builder and it will be held to the principle of caveat emptor.
Caveat Emptor is Serious but has a simple remedy.
Real estate agents should always tell their prospective clients about caveat emptor. Agents should demand the buyer to have the property thoroughly inspected. If the buyer refuses, get the buyers to sign a written statement saying that you, as their representative, have strongly insisted that they have the property inspected and the buyer has refused to do so. The purpose is to protect yourself but it is also to cause the buyer to realize the seriousness of having inspection performed.
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.