By: Mark Weisleder
Buyers and sellers need to understand their legal rights and obligations when making or asking for promises in a real estate contract. Failing to understand could lead to damages and unnecessary legal proceedings.
A promise in a real estate agreement is classified as either a representation or a warranty. These
terms are used interchangeably yet they have different meanings and consequences. A representation is a statement about a state of affairs on a property. If the statement is false, then it is called a misrepresentation. A misrepresentation by a seller can in some cases permit a buyer to cancel a contract and, in other cases, sue for damages. If the buyer can prove that they would not have signed the contract without the representation, then they can cancel the deal.
For example, let’s say the seller told the buyer that there was going to be an elementary school built down the street in the next two years. The seller made an honest mistake. No matter. If the buyer can demonstrate that they would not have bought that home without that promise, then they can cancel the deal. If however, it was not that important to their purchase decision, then they cannot cancel.
A warranty is not fundamental to a contract but is a separate guarantee or promise as to a current or future state of affairs. If a seller breaks a warranty, the buyer cannot cancel a deal but can sue for damages.
The most common representation and warranty given in the real estate agreement is that the chattels and fixtures remaining on the property after closing will be in good working order. If thisis untrue, and something is not working after you move in, you cannot cancel the agreement but you will be able to sue for damages.
This warranty is not like the one-year warranty that you receive when you buy an electrical appliance. In real estate agreements, there is an expression that all warranties “merge,” which means that they expire on closing. Since most buyers cannot check whether everything is working on the actual day of closing, most real estate salespeople change the wording of the warranty slightly to indicate that the warranty survives and does not merge on closing but only applies to the state of the appliances on closing. This will permit a buyer an additional one or two days after closing to check for any problems.
There was a case when buyers purchased a cottage and did not physically go to the cottage for the first time until one month after closing. They found that the dishwasher was broken. The judge said that even though this may have been their first time checking the appliance, since it may have broken down during that month on its own, no damages were awarded.
The message for buyers is that they must include in any agreement a pre-closing visit to the property so that they can check everything just before closing. And then upon moving in, check everything again as quickly as possible. In addition, consider buying after-sale warranty protection for your appliances.
Some things cannot be checked. For example, if you buy a home with an in-ground pool in the winter. In those situations, it may be appropriate to give a warranty that will survive until May 1, to give time to open the pool and check it. If the seller is reluctant to provide this, a compromise would be for the buyer to ask for and be satisfied with a copy of the pool closing report which is usually prepared when you have your pool professionally maintained.
In rural communities, representations and warranties about the well and septic systems remain the top reasons for claims between buyers and sellers. It is best to make any rural property purchase conditional on your being satisfied with professional inspections of these systems before committing to any purchase.
Understand your rights before making or asking for any promises in real estate deals to avoid unpleasant surprises either before or after closing.
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