Real estate has evolved from the days in which the government gave away thousands of acres just to get people to settle them (although apparently, that has happened on an isolated basis, even in very recent years) into a highly regulated, highly litigated, uber-complex flurry of legal forms and rights and obligations.
There is probably no locale in which this is truer than it is in my home state of California, where it’s not at all bizarre for a homebuyer to sign a couple hundred pages of contract and disclosure forms to seal a real estate deal.
Here in the Golden State, we have a form called the "Buyer Inspection Advisory." At first glance, it seems like it just tells the buyer to have a home inspected before he buys it, and it does that. But it also contains pages of descriptions of the various types of inspections that are possible, which most buyers would not even be aware of: everything from pool inspections to specialist inspections for soil and lot lines.
Something similar to this form is used in many states, to bolster seller disclosure laws that the vast majority of jurisdictions have imposed. Smart buyers not only read the disclosures and get the inspections, but they also read the inspection reports and obtain any recommended further inspections and repair bids.
Nonetheless, given all these advisories and forms and disclosure laws and inspections and appraisals, caveat emptor (which is Latin for "buyer beware") would seem to be an obsolete warning as applied to real estate in 2012.
But the fact is that there are still a handful of scenarios in which buyers can’t expect as much protection from laws and forms, and have to be uber-vigilant in sussing out problems with properties. Here are five of those modern-day "caveat emptor" home-sale transaction types:
1. Buying in a "caveat emptor" state. In most states, homes that are sold "as is" are implied to have an "as-disclosed" contractual condition, which just means that the seller is not responsible to do any repairs, but is responsible for telling the buyers of any problems with the property that the seller is aware of (or should be aware of).
But in some states, sellers have no disclosure requirements in as-is transactions. The state Supreme Court of Alabama recently held that a seller who was completely aware that the property flooded severely on an annual basis had no obligation to inform the buyer of this fact because the sale was on an as-is basis.
Check with your agent and read your contract and disclosure forms very carefully to determine whether your state is one of the very few jurisdictions that formally impose caveat emptor terms in as-is real estate sales.
2. Buying a brand-new home. Homes that are newly constructed simply don’t have the history of problems, repairs, upgrades and issues that resale homes have, so many states exempt new-home builders from at least some portion of the disclosure requirements that they impose on sellers of resale properties.
3. Buying an REO. Foreclosed homes that are being resold by the former owner’s mortgage lender are often exempt — technically or logistically — from at least some of the ordinary seller disclosure requirements.
In many cases, they are legally exempted on the basis of being a corporate seller; in others, they may provide the actual form disclosures required with an annotation across the front of the form to the effect that the bank never lived in the property and so has no way to know any information about its history.
4. Buying from a trust or estate of a deceased homeowner. Many trusts and estates are in a similar factual position to an REO-owning bank in that the legal entity itself or its administrator has no way to know the detailed history of a property the way a seller who’d lived in it personally does.
So some states exempt trusts and estates where the former homeowner has passed away from even bothering with an effort to fill out the detailed disclosure forms that a resident seller would have to complete.
5. Buying from the government. Though some states do give land away, the federal government does not (not to individual people, anyway) — it sells it only, and always at fair market value, often by auction.
Whether you’re buying a property from the county government, which repossessed it due to delinquent property taxes, or a lighthouse from the federal government, chances are good that if you’re buying a property from a government agency, you will not be entitled to the same level of disclosures that you would from an individual home seller.
In no way should these disclosure exemptions turn buyers entirely off these sorts of transactions. In fact, the same circumstances that exempt the sellers from making the full spectrum of detailed disclosures in these situations often pose the potential to manifest into a fabulous deal for the property.
In some ways, these scenarios do buyers the favor of encouraging them to avoid the potentially treacherous prospect of relying on a seller’s disclosure.
In these cases, buyers are more likely to go above and beyond in terms of getting property inspections and repair estimates and doing their own investigations of the property, asking around the neighborhood to gather any anecdotal information, searching the property address online, and going down to the city and county records houses to make sure they understand all the permits and citations that have been issued to the address over time.
Basically, it’s about doing all the things "regular" homebuyers should do but commonly don’t when they receive a hefty set of seller disclosures.