Caveat Emptor (“let the buyer beware”)

Buyer Beware!

See what I did there? Instead of pushing you away with an antiquated Latin title to this article – Caveat Emptor! – I decided to pull you in with its significantly more compelling English translation. Now that you are obviously hooked, I hope you’ll continue reading to have a better understanding of a very important legal principle as it relates to real estate transactions.

Caveat Emptor (“let the buyer beware”)

Caveat Emptor (“let the buyer beware”) is a well-settled legal principle that establishes the starting point in a real estate contract. In simple terms, it expresses the common law contract concept that a buyer of real estate is responsible for thoroughly investigating the real estate they are buying BEFORE closing. Of course, once a buyer is under contract to purchase a home or other real estate, the last thing they want to hear is BEWARE! But it is essential that a Colorado real estate licensee properly advise their clients on this important concept.

I often hear about real estate licensees who write “as is” clauses into the Additional Provisions of the Colorado Real Estate Commission Contract to Buy & Sell Real Estate (“CBS”). Typically, this “as is” clause is intended to express the agreement that the buyer doesn’t expect the seller to do anything regarding inspections or other repairs on the property. The property is being sold “as is!” Gee, that sounds super convenient for everyone and should set up a nice, smooth closing! Completely overlooked by the buyer and seller (and, sometimes, even the real estate licensees!) is that EVERY COLORADO REAL ESTATE CONTRACT IS “AS IS.

Paragraph 10.2 of the CBS clearly states that the “Seller is conveying the Property to Buyer in an ‘As Is’ condition, ‘Where Is’ and ‘With All Faults.’” Ironically, this is a more explicit “as is” clause than most real estate licensees ever take the time to write in the Additional Provisions… and it is included in EVERY SINGLE CONTRACT! The fact that all real estate contracts on the “Commission approved” form are “as is” is a fact that Colorado real estate licensees allow their buyer clients to overlook far too often.

Always Remember

While the traditionally strict application of “caveat emptor” may have been softened by centuries of judicial interpretation and contract refinement. It is important for Colorado real estate licensees to inform their buyer clients that the starting point of every Commission approved CBS is that the property is being purchased “as is, where is and with all faults.”

Apart from any seller or broker disclosure obligations, the burden is exclusively on the buyer to perform all their inspections of a property thoroughly and with competent professionals. “Caveat emptor” may not be two words that your buyer wants to hear as they enter into a real estate contract, but it is critical that they understand it is the contract’s starting point.

Buyer Protections

Fortunately, buyers have a couple of important protections that mitigate some of the potential harm of entering into strict “as is” contracts. Those protections come in the form of both disclosures and contingencies.

Disclosures

Unlike the potentially harsh medieval application of the concept of “caveat emptor,” American legal theory is a bit kinder and gentler to a buyer. First, courts have generally imposed a duty on a seller to disclose defects on a property of which the seller has actual knowledge. More importantly, the Commission approved CBS requires that a seller disclose, in writing to a buyer, any “adverse material facts actually known by Seller as of the date of this Contract” (CBS Paragraph 10.2). This requirement is contractual and obligates a seller to provide a written disclosure even if they HAVE NOT contractually committed to delivering the Commission approved Seller’s Property Disclosure form. Finally, it is critical for a Colorado real estate licensee to understand that they have an independent obligation to disclose “adverse material facts” to a buyer under license law. (For a separate discussion of a real estate licensee’s disclosure obligations, please refer to Colorado Real Estate Commission Position Statement 46.)

Contingencies

Another protection for a buyer against the harsh result of a true “buyer beware” perspective is the availability of many buyer “contingencies” in the Commission approved CBS. The vast majority of the 18-page CBS is utilized to offer a responsible buyer the opportunity to consider every aspect of the property they have contracted to purchase. In a fully completed contract the buyer has an opportunity to subjectively consider the property’s title records, insurance availability, association documents, seller disclosures, financing, appraisal/value, physical conditions, etc. In essence, the buyer has a contractual right to review and “beware of” everything relating to the property. If the buyer, through their thorough consideration of the property, determines that there is something objectionable, they have the right to cancel the contract or negotiate some other acceptable resolution with the seller. The important protections afforded by these contractual “contingencies” is yet another reason that a buyer should be VERY CAUTIOUS before agreeing to waive any of the contingencies at the time of contract.

Caveat Emptor!

About the Author

Scott Peterson is the General Counsel for the Colorado Association of REALTORS.

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