What Is Caveat Emptor?

Caveat Emptor Explained in Less Than 5 Minutes

 two women talking to each other across a desk about financial matters
•••

Thomas Barwick / Getty Images

Caveat emptor is a Latin phrase that means to “let the buyer beware.” Prior to the industrial revolution, it was a key principle in transactions. It puts the responsibility on the buyer to perform their due diligence before purchasing a good or service. 

While a common practice from the past, caveat emptor has become less relevant over time. Sellers have gained an unfair advantage due to numerous factors, so many regulations have been put in place to provide buyers with more protection. However, you may still come across the term in certain types of transactions.

Learn more about what caveat emptor means, how it works, and where it’s still in effect today. 

Definition and Examples of Caveat Emptor

Caveat emptor is a Latin phrase that translates to “let the buyer beware.” The idea behind caveat emptor is that the duty falls on the buyer to ensure that the product, service, or property they are buying is of the quality they expect. 

Before our current marketplace was the norm, it was much easier to discern the value of products. Buyers and sellers were on more equal ground, and caveat emptor was the ruling principle. However, now, with increasingly complex goods and services and global commerce, consumers are often at a disadvantage. They need information from the seller to make an educated decision.

Let’s look at what caveat emptor looks like in practice. If you go to a garage sale on the hunt for used items and buy a lawnmower “as is,” caveat emptor applies. It’s your responsibility to inspect the equipment for flaws before buying it. In this case, the seller is not required to tell you about any problems that may exist with the product. Further, if you buy it and it doesn’t work properly, the seller is not responsible for taking it back or giving you a refund. 

How Caveat Emptor Works 

Today, caveat emptor does not apply to as many situations as it once did. Due to the changing marketplace, government regulations were created to protect consumers’ interests.With the release of the Uniform Commercial Code (UCC)—a set of business laws that regulate financial transactions that occur across states—for example, warranty provisions are much more common. Additionally, some industries now require seller disclosures. 

Warranties guarantee the quality or satisfaction to buyers. If the product purchased by a  buyer does not meet the promised standards, in most cases, they can request a refund or other repercussions as a result of the sale. Because of this regulation, sellers are more likely to provide a quality product. 

The Expansion of Warranties and Required Disclosures

The UCC states that sellers follow through on expressed warranties, which are expectations set by sellers through samples or promises about a good or service. For example, a perfume company may offer a tester of their perfume. As a result, their product should be of like quality to the tester. 

There are three types of implied warranties:

  • Merchantability warranties ensure a product is fit for its ordinary purposes and is expected of all sales unless specifically disclaimed. 
  • Fitness for a particular purpose warranties means that the product does what a seller says it does and applies when sellers make claims.
  • Title warranties apply to every sale, unless it’s disclaimed, and guarantees the seller can legally transfer the goods.

Further, specific disclosure laws have been put in place for certain goods and services. For example, in the financial services industry, service providers often have much more information about the fees, risks, benefits, and quality of their offerings than consumers. Being so, the Truth in Lending Act (TILA) requires providers to disclose the terms and costs of consumer credit products to potential borrowers.

What Caveat Emptor Means for You

Despite growing regulations, caveat emptor does notably live on in real estate transactions today involving previously owned homes. Homeowners who are selling their properties don’t need to disclose any defects to a buyer, with a few exceptions that can vary by state. 

When buying a home, it’s important to undergo a thorough inspection with a reputable home inspector to help you identify any potential issues with a property.

In Alabama, for example, the Alabama Supreme Court has held that caveat emptor is the law when selling existing homes. Home sellers are only required to disclose issues when buyers make a specific inquiry or if the buyer’s health or safety may be at risk with the purchase. New home sales don’t fall under caveat emptor, though, as they typically require an implied warranty of fitness. 

While there are still a few applications of the caveat emptor principle today, another common rule is caveat venditor—“let the seller beware.” Sellers today, unless otherwise advertised, need to ensure their product or service is guaranteed to meet the implied or expressed purpose.

Key Takeaways

  • Caveat emptor is a Latin phrase that translates to “let the buyer beware.”
  • Caveat emptor is meant to put the burden of due diligence on the buyer in a transaction, and today, it is most commonly used in real estate.
  • Caveat emptor is not used in many transactions today due to regulations that aim to provide consumers with more information and protection.