This time we dive in Caveat emptor when buying a property (what to avoid). I explain what does it mean, how we can protect ourselves as buyers, How some estate agents use the Caveat emptor against buyers and some caveat emptor examples.
If you are looking for a specific part of that text, jump straight to the table of content.
What is Caveat emptor?
This is the neo-Latin borrowed phrase for well known “let the buyer beware”. In principle means, it is a buyers responsibility for due diligence and discovering defects while making a purchase. It is widely used in real estate but applies to all other goods and some services.
The term first appeared in the 1500s.
One of the most famous cases is Chandelor v Lopus (1603). The common law of England gave rise to the rule of caveat emptor and the distinction between warranties and little affirmations.
Find more here https://en.wikipedia.org/wiki/Chandelor_v_Lopus
Since 2013 with the abolition of the Property Misdescriptions Act the sale transactions of a property industry has come under 2008s Consumer Protection Against Unfair Trading Regulations.
Translated in ordinary language means the seller is legally required to inform their estate agent and any potential buyer of any information possible that may affect the consumer’s decision for the transaction.
In a way is excellent protection for real estate consumers as the sellers can no longer choose what to tell and what not to tell.
Although my experience shows a different situation, even up-to-date 2019.
Caveat emptor and principles in property sales.
Caveat emptor when buying a property
Before a property to being put on a market for sale, all agents should provide the seller with Property Information Questionnaire.
Where the seller must put down all the relevant information about the condition of the property including any caveats or uncertainties.
Property Information Questionnaire should include:
- disputes with neighbours;
- notices for future or continuous developments nearby;
- obtained permissions for building works
- future planning
- significant events as murder or suicide
- details for defects (not only of structural manner)
The reality is not all sellers are honest while providing that information. Moreover, if the real estate agent does not check by themselves if the answers provided are honest, both parties may be in trouble later.
As this process is part of a law, the seller may get in return criminal proceedings with a severe fine or even imprisonment.
THE REAL ESTATE AGENTS:
Estate agents have this as a duty, to reveal any material information they know or ought to know. For example, if a previous sale transaction has fall trough resulting in down valuation because of defects. This should be disclosed!
The National Trading Standards updated in 2015 the guidance that all real estate agents should comply and working according to when carrying out activities in the UK.
The guidance can be downloaded from https://www.isurv.com/info/1386/ntseat_guide_to_sales (It requires a subscription, but they offer and free trial)
A citation of the team leader of the National Trading Standards agency, James Munro:
“The regulations have broad coverage, but the way they impact on property sales businesses will depend on the particular services you offer. This guidance is intended to help property sales businesses comply with the regulations.
“If you treat your consumers, business customers and competitors fairly, then you are unlikely to breach the regulations. However, if you mistreat them, you may face criminal and civil enforcement action.”
A high percentage of home buyers which falls in the category below
£ 320,000 prices, do experience caveat emptor on their back.
They fall as victims because of inadequate due diligence on their side or the real estate agency passed over the important caveats by making misleading statements.
Sometimes they make this mistake by just not being well enough informed and unprofessional.
In some occasions when buyer ends up purchasing a property with undisclosed problems, they fall in a trap.
This is happening because a typical dispute will take too long, high solicitors fees which will end in a result wasting per cent of their money for the property renovations or fixes.
What Real Estate agents are required
The most used trick on the market:
One of the most common tricks agents are utilising is misleading photos (not up-to-date), not precisely ethically, right?
Do not listen to your Estate agent if:
If your estate agent encourages you to keep the potential buyer unaware or they are ready to raise the price for the sake of their commission and shine like a star in your eyes, I would advise you to cancel all appointments and not list your property on the market with them.
Any good reputable and experienced estate agent will know how to deal with that part of the sale process. They should be masters of the game pros and cons, but not lying.
Alongside with the National Trading Standards, they are required under the Energy Performance of Buildings Regulations to provide with a valid, up-to-date EPC report. The report should not older than 10 years.
What could a buyer do if buys a property with an issue?
In those cases, the solutions available to buyers will depend on :
- timing – when the defect was discovered
- type – the nature of it
If the defect is detected after the completed transaction, the buyer may activate a repeal the contract out of effect and claim damages or breach of contract.
If the defect is identified at the time of the exchange and completion, the buyer can refuse to complete; ask for a reduction of the price, or be entitled to compensation.
At my personal experience, I have dealt with many cases where the buyer ends up buying a property with some severe defects. In 70 percents, we have managed to secure a reduction of the price, where the highest achieved per cent was 35 percents of the fist asking price.
Caveat Emptor in power.
Contracts for the sale of property
Standard conditions which are part of 80 percents of contracts provide that a buyer has the right to claim damages where there is a material difference between description and value of the property.
Any of the included content in the contracts can be the point of objection as they represent the reality.
Contract conditions should also provide a buyer with the power to rescind the contract following a claim from misrepresentation or breach of contract if the following applies:
- omission results from fraud or recklessness
- seller’s error
Alternatively, the buyer would be compelled, to its prejudice, to accept property that is different in quality or tenure.
Caveat emptor property misrepresentation examples
Have you ever heard of the terms innocent, fraudulent and negligent?
These three types of claims have a different approach. In many cases, clauses are included as part of the contract with the intention to minimise or exclude the seller’s liability.
If you are in the process of buying, pay attention and check with your solicitor for these clauses in your contract before the exchange.
What is Innocent misrepresentation?
In short, this is a fraudulent civil offence, where one party can sue the other.
If your seller fails to update the Property Information Questionnaire or you with the latest information, it is treated as Innocent misrepresentation.
The court has the discretion to award damages or rescission but not both, which means you won’t get more than what you lost.
What is fraudulent misrepresentation?
It is misrepresentation where the seller does not indicate on the Property Information Questionnaire for disputes, while they know that their neighbour or someone else is objecting at something. A buyer can establish fraud and make a successful claim, based on false facts, as the buyer relies on this information about the property to make an essential decision of purchase.
What is negligent misrepresentation?
When a seller makes a statement without reasonable grounds for truth.
The court can rule in your favour for negligent and fraudulent misrepresentation with rescission and damages.
Misrepresentation claim and timings
An important caveat is a time that applies to these misrepresentation claims.
For Innocent and negligent misrepresentation the time runs after the completion of the exchange.
For fraudulent misrepresentation is the tricky one as the time runs from the discovery of the truth, which may become a precondition in some cases to an unfair claim or fail.
I have written recently on another interesting topic about property valuation and its flexibility in the
I have provided this information in this article (Caveat emptor when buying a property) with the help of boltburdon.com, hamhigh.co.uk and levisolicitors.co.uk.