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 buyer’s 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.
