Anyone trying to buy a home in the past year has faced a situation where another buyer came in with an offer that was all cash, and significantly over asking price. While the home price trajectory may have slowed a bit recently, the last year has been incredible and unprecedented. It is the epitome of a seller’s market. Of course, when you have a seller’s market, you see desperate buyers making moves to get a home under contract. One such change we have seen is buyer waiving contingency – including buying as-is. This is, of course, a risky proposition and we do not suggest clients do this. Buying a home without a chance to inspect, could lead to untold potential problems. At the same time, there is some (though little) protection for buyers, even when they buy as-is.

In the sale of real properties, there are implied and explicit warranties that the seller makes to the buyer as to the condition of the home. This would include the general warranty that the property is fit for its intended use, which is for residential occupancy. However, what happens when the buyer buys as-is? Does the seller have any liability if problems arise later?

A latent defect is defined as “[a] hidden or concealed defect. One which could not be discovered by reasonable and customary observation or inspection….” Courts have held that nondisclosure to the purchaser of latent defects known to the vendor “impairs the right of the [purchaser] to receive the benefits” of the contract. Rawlings, 151 Ariz. at 153, 726 P.2d at 569. This is because it is the very nature of the latent defect, the fact that it’s hidden, precludes the discovery of the defect upon a reasonable inspection.

Therefore, in deciding whether a seller can be liable for defect in a property, the judge/jury looks to the following: (1) was the defect material to the transaction; (2) whether the defect is latent or patent; (3) whether the seller knew about the defective issue; (4) whether the buyer undertook a reasonable inspection; and (5) whether the seller gave the buyer an equal opportunity to discover the defect.

In other words, if you are selling a home, an “as-is” clause may protect you from numerous claims of alleged defects of the property. The parties can even stipulate to waive any seller disclosure requirements. However, if a material defect exists, that the seller is aware of and intentionally hides it, the seller could face potential liability. On the other hand, if the seller is unaware of any problems, an “as-is” addendum is used, and the buyer had a reasonable time to inspect, the seller likely will not be liable. Now, if the buyer waives their right to inspect, that could lead to different arguments, which we do not yet believe have been litigated fully in Arizona. Therefore, we expect more litigation to come out of the recent increase in home sales.

by Mark B. Zinman, Zona Law Group