Real Estate Talk:
How to acquire warranty

Obtaining warranty when the property is sold without one

By Joseph Marovitch

October 23, 2024

A property is rarely sold without warranty since this causes concern for buyers. A property is normally sold with warranty. This means the seller is warranting the property against hidden defects that cannot be detected in a normal house inspection.

Qualified home inspectors report only what they can see or detect with a thermal imaging device. Home inspectors do not open the walls or tear up the floors. Therefore, what cannot be seen, such as cracks in the foundation, interior walls, fireplace, plumbing, or electrical issues, are covered by the warranty, which means the previous owner would be liable and must repair or pay for the damage.

In some cases, it is better to sell without warranty so the buyer cannot hold the present seller accountable for hidden defects.

A property is normally sold with warranty. This means the seller is warranting the property against hidden defects that cannot be detected in a normal house inspection.

Selling without warranty is good for the following reasons:

1. The house was inherited, and the beneficiary knows nothing about the condition.
2. The seller is advanced in years, entering a retirement home, and does not need the headache.
3. The seller is moving far away, such as overseas, and does not want to deal with the issue.
4. The buyer is a contractor who intends to fully renovate the property.
5. Other reasons

For a home to be sold without warranty, a clause must be placed in the listing, the brokerage documents, the promise to purchase, and the deed of sale. They must state the following:

“This property is sold without legal warranty as to quality and at the buyer’s risk and peril.”

By selling without warranty, the seller breaks the chain of prior owners who sold with warranty unless a clause is placed in the promise to purchase.

How to acquire warranty when the property is sold without warranty

In a recent amendment by the OACIQ (Organisme d’autoréglementation du courtage immobilier du Quebec), the government body regulating the actions of real estate brokers, a new rule is in effect that allows the buyer to exclude the current seller from warranting the property but not any of the previous owners.

In a normal sale where the property is sold with warranty, the seller and all the previous owners that are alive also warrant the property against hidden defects. The buyer can hold the prior owner responsible for hidden defects if the current seller cannot be found after the sale.

‘In a recent amendment by the OACIQ …  a new rule is in effect that permits the buyer to exclude the current seller from warranting the property but not any of the previous owners.’

However, if the following clause is placed in the promise to purchase, the current seller can sell without warranty but the prior owner, who sold with warranty, can be held liable:

“This sale is made without legal warranty of quality, at the risk and peril of the buyer as to the actual owner, but the sale is with legal warranty as to the previous owners.”

In French: « La présente vente est faite sans garantie légale de qualité, aux risques et périls de l’acheteur quant au propriétaire actuel, mais la vente est avec garantie légale quant au propriétaires précédents. »

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Next article: A window of opportunity for buyers

State of the market

Once again there is good news. On October 23, 2024, the Federal Government introduced another half-point rate cut. Now that the inflation rate is below 2%, the Federal Government is cautiously reducing the Fed rate by ½ a point to 3.75%. This is good for buyers with lower carrying costs with a lower mortgage rate and lower inflation. The rate cut is good for sellers as it increases their property value and the demand for homes. More rate cuts are expected that will drive the real estate market further into a prosperous future for everyone.

Now that the inflation rate is below 2%, the Federal Government is cautiously reducing the Fed rate by ½ a point to 3.75%.’

However, as always, I advise caution. Gold is now at a record high as investors prepare for various scenarios after the U.S. election. There are policies that the Republicans may bring to bear that could cause the worldwide supply chain to slow down and thereby increase world inflation and interest rates. However, a win for the other side may result in further prosperity, lower inflation and further rate cuts. Let us hope.

Have a great week!

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