Caveat Emptor - Explained
What is Caveat Emptor?
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Table of ContentsWhat is Caveat Emptor?How does Caveat Emptor Work? Academic Research on Caveat Emptor
What is Caveat Emptor?
Caveat Emptor translates to 'Buyer Beware.' This means that the buyer bears all risks when s/he makes the decision to buy from a seller. While the term is common in real estate products, it also applies to other products.
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How does Caveat Emptor Work?
This phrase was coined to warn buyers in the sense that sellers have more information in a product than buyers. It informs the buyer that she will bear the risks of any adverse information she may not be aware of. There is no guarantee that the products on sale are of good quality. It is up to the buyer to gather all information on a product before buying. However, the seller is not allowed to offer false information to the buyer. This policy has a lot of exclusions; there may be accidental misrepresentation or deliberate fraud by seller. In such a case, the buyer is not accountable for the misrepresentation. In other cases, the sellers empty the terms of this policy by voluntarily offering warranties and guarantees of quality. In garage sales, for instance, buyers are mandated with testing the quality of the goods they buy and if the goods turn out to be defective, they cannot return them. Outside garage sales, for instance in the sale of a car, sellers are held accountable by law which requires them to offer adequate disclosure. Today, Caveat Emptor is applied on real estate products. However, there are lots of regulations guiding the real estate industry and Caveat Emptor is losing its significance. In addition to real estate, the financial services industry is an exception to this principle. Here, regulators require those selling financial products to disclose all the details about a product. In cases where there is evidence of product misrepresentation or the buyer has offered false information, the Caveat Emptor principle does not apply. If a person A buys a house from B and A asks whether there are defects, B is supposed to notifying him of any defects. If A does not inspect the defects and there ends up being a leak that destroys the house, B is not held responsible. Caveat Emptor has been applied in commerce. In securities, for instance, though Congress favors disclosures, the buyer is still responsible for the products they buy. While buyers are responsible for their buying decisions, there are many laws that protect the buyer against the Caveat Emptor principle. For instance, the buyer has the right to obtain clear and standardized product information.