In the Real Estate realm, the phrase “caveat emptor” gets used a lot. Usually, it is the response to a situation where the buyer has discovered an issue with the property they have purchased. For those who don’t daily navigate the waters that are real estate transactions, Caveat Emptor is a Latin phrase meaning “let the buyer beware”. It is an important concept in contract law, especially as it relates to real estate transactions because most of the burden is placed on the buyer to ensure that they understand the property they are purchasing. It is the responsibility of the buyer to diligently investigate all of the issues pertaining to the property which would affect their plans, ownership, use, and enjoyment of the property.
One piece of advice to home buyers is to share their plans for the property with their agent so they know going in what the buyer is looking for from the property after the closing has concluded. Ultimately though, it is on the buyer to make sure they know what they are buying. The following list is not exhaustive. These are some of the main areas where buyers run into issues after a closing and are all items that are a matter of public record and can be researched by the buyer prior to making an offer.
- Are there Restrictive Covenants, Conditions and Restrictions and/or By-Laws?
Covenants, Conditions, and Restrictions (also called "CC&Rs" or “Restrictive Covenants”) are rules put in place by developers and/or Homeowner’s Associations that govern property in specific neighborhoods, developments or condominiums. There are at least four documents in a closing transaction that a buyer will sign agreeing to abide by the CC&Rs of the community where they are buying property. The time to review and understand what rules and regulations they are legally subjecting themselves to as the buyer is before the closing and ideally before the contract is ratified. If time is of the essence, the buyer can ask their agent to add a contingency to the contract which gives them a certain amount of time to review and approve the CC&Rs and By-Laws and if they approve of them during that time period, they can back out of the contract without fear of being sued successfully for breach.
Popular CC&Rs found in most communities are building set-back lines which state how close to the property lines the home and any improvements such as fences can be constructed. Setback lines are very important measurements that must be adhered to when doing any improvement or building on the property. Everyone has heard horror stories about fences and parts of houses being built over the property lines. This is a nightmare buyers can easily avoid by reading the CC&Rs. Bylaws are typically what your individual community board comes together to discuss, vote on and agree to. These are equally important when considering purchasing property because they help you to understand how the community is run.
- Is there an Architectural Control Committee (ACC)?
If the buyer is planning on doing any kind of outdoor improvements or renovation and the community has CC&Rs then there will most likely be a section that describes the Architectural Control Committee. The ACC is an extra level in the approval process for any proposed renovation submitted to the neighborhood governing body. The ACC’s primary objective is to preserve property value as well as visual aesthetics and character of a neighborhood. It is important for buyers to know that a proposed project may follow the letter of the CC&R’s but there may be certain stylistic or other aspects that won’t be approved by the ACC. If there is an ACC then approval is required if a buyer wants to move forward on exterior improvement projects. One thing we hear a lot as closing attorneys is that buyers don’t understand why someone can dictate what color the house is painted or what kind of shutters are acceptable. This is why it’s important for a buyer to make sure that they understand the guidelines and process for the ACC and investigate whether their vision for the home would match the ACC approval committee. Adding the contingency referenced in #1 to review and approve the CC&Rs can also be tailored to add investigation of an existing ACC.
- Do any zoning rules affect my plan for the property?
If you have ever seen a “For Sale” sign that references a property as being “zoned for Commercial and Residential”, then you are already familiar with the concept of zoning ordinances. Zoning ordinances are governmental regulations that dictate how property in certain districts or zones can be built, improved upon and utilized. For example, if a district is zoned for residential only, you won’t find a Walmart in the middle of the neighborhood. Zoning can also govern minimum lot size, maximum home size, and building setback lines. If the buyer plans on doing any kind of project to the property, they can go to the local zoning office or planning board and find out which ordinances apply to the property they are thinking about buying.
- What can the recorded plat maps show?
In addition to providing property line locations and measurements, plat maps set out the design of streets, common area for use by the neighborhood, sidewalks, and drainage easements. When developers design neighborhoods, 99% of the time there will be a neighborhood plat map that is recorded. This map will show all lot locations in a particular phase of the neighborhood in addition to the items referenced above. If the buyer is considering a project for improvement on the property, they should research if there has been an individual lot plat map recorded for the property. If no plat map can be located or if only a neighborhood map has been done, then the buyer should also consider purchasing a survey of the property prior to the closing. Reviewing plat maps is also a good way to spot issues such as a neighbor’s fence that encroaches the property line prior to closing.
- Is the property in a Historic District?
As someone born and raised in Charleston, South Carolina where the first U.S Historic District was established, I have firsthand experience with the types of properties that can be found in a Historic District. These properties are usually interesting and beautiful but can be costly to maintain and renovate. When looking into the upkeep, care or improvement of a historical property, it is not only the cost of the labor and materials the buyer has to consider. They must also consider the rules and restrictions that govern any improvement or repair done on those properties and the review and approval process involved. The purpose of Historic Districts is to preserve property which is of great historic, architectural or cultural significance to a larger community. The commissions who enforce and uphold the regulations of these districts are very serious about preserving these properties. Historic District protections supersede other zoning regulations so the importance of knowing whether or not a property is located in a Historic District is crucial for a buyer, even if they aren’t planning immediate improvements.
As stated above, the items on the list are not exhaustive and should not be the only thing a buyer investigates when purchasing property. These were specifically chosen for their frequent role in buyer issues after closing and also because they are all matters that a potential buyer can investigate on their own. It is also important to note that these items are not typically considered or investigated by a closing attorney with respect to buyer intention for the property. This list is especially important for buyers who plan on doing major renovations or for buyers who plan on flipping and selling properties. It is also important for prospective buyers who want to make sure they understand what rules and regulations they will be expected to abide by after their purchase.
Published on March 19, 2020