Real Estate Talk:
With or without warranty
The pros and cons of buying or selling with or without warranty
By Joseph Marovitch
Updated February 3, 2021
Imagine! You just purchased your dream home. You followed all the right steps, from using a qualified broker to having an inspection. All conditions are complete to your satisfaction, possession has taken place and you are now enjoying your new home.
One day, not long after you have moved in, you are gardening on a beautiful warm sunny day when, all of the sudden, as you’re digging a hole to plant your tulips, you strike oil! Not the Beverly Hillbillies’ kind of “get rich oil”, but rather the oil from a buried, leaky oil tank in your back yard that was used long ago as part of the heating system. You bring in a city inspector, tests are performed and you find you have an environmental contamination problem in your back yard. Who do you call and who is responsible to clean up the mess and remove the tank?
The seller of the home is supposed to sell the home without issues that can de-value the home or render it unliveable, unless they sold the house without warranty, as is, at the buyer’s risk.
If you purchased the property with warranty, the previous owner would be responsible. However, the previous owner could hold the owner before that owner, responsible. In fact, all the previous owners are responsible until you find the owner that was aware of the tank and used it, or the last living owner.
To understand what warranty or without warranty means, first know that the home inspector is only responsible for the issues in and around the house he or she can see. The home inspector is not responsible for issues they cannot see such as structural cracks, broken linings in the chimney, buried old oil tanks. The issues that can pose a problem but cannot be immediately detected are called hidden or latent defects. The seller of the home is supposed to sell the home without issues that can de-value the home or render it unliveable, unless they sold the house without warranty, as is, at the buyer’s risk.
The words sold without warranty, as is, at the buyer’s risk must be placed in the following areas:
- The brokerage contract
- The Centris listing
- The promise to purchase
- In the deed of sale
There are reasons to sell without warranty and there are cons to selling without warranty.
Reasons for buying and selling without warranty:
- The vendor inherited the house but never lived in it, therefore does not want to be responsible for hidden defects.
- The vendor is aware the house may have hidden defects and again does not want the buyer to hold them responsible for issues that may come up.
- The vendor is moving far away and does not want to be bothered.
- The buyer may intend to completely renovate the house and is not concerned with hidden defects.
- The buyer wants a lower purchase price and is prepared to take the risk of hidden defects in exchange.
In most cases, where the seller lived in the house and maintained the house in good condition, the house is sold with warranty.
Cons to selling without warranty:
- The vendor may end up with a lower selling price or take much longer to sell, since selling without warranty raises many red flags of warning.
Should you have questions or comments, please refer to the comments section at the bottom of the page. As well, to view past articles, click here.
Next article: The selling process
State of the market
According to a Reuters poll of Canadian market analysts, house prices are poised to rise by 5% due to extremely low-interest rates and low inventory. Many of these analysts believe further outbreaks of COVID-19 and its variants will not adversely affect the real estate market. This is a prediction I would not make.
We all hoped and assumed this pandemic would be under control by the beginning of May 2020. The pandemic calmed down and then a 2nd wave came, and then a 3rd and then several variant strains emerged all over the world. No one can accurately predict where the pandemic is going to take us. The best market predictions are short term ones of three to six months. If the virus recedes, more homes will come to market and prices will not rise as fast. If the pandemic worsens with new and more infection symptoms, sellers will hesitate to place their homes on the market, leading to less inventory and higher prices.
‘No one can accurately predict where the pandemic is going to take us. The best market predictions are short term ones of three to six months.’
The Bank of Canada promised to keep interest rates near zero for at least the next two years, during the pandemic, to give the economy a chance to recover. However, there are analysts in the tier one banks, which include BMO, RBC, Scotia, TD and CIBC, that look at what they believe is a booming real estate market based on rising prices, and not number of sales, and are considering raising interest rates much sooner. The assumption is that the economy is withstanding the pandemic, using real estate rising prices as an indicator, despite high household debt, closed businesses, and the fact that the virus and its variants are totally unpredictable.
In my opinion, the banks must examine the wider global picture, consider the worldwide effects of the pandemic, and keep interest rates low for the foreseeable future. Canadian economic stability should be observed for a good amount of time before deciding we are out of the woods.
‘If the virus recedes, more homes will come to market and prices will not rise as fast. If the pandemic worsens with new and more infection symptoms, sellers will hesitate to place their homes on the market, leading to less inventory and higher prices.’
The alternative is the bank of Canada raises interest rates due to two or three months of economic stability, straining already debt-laden households, and then a more virulent and infectious strain of COVID-19 hits the planet, and we are all in a perilous vat of poop.
This all being stated, chances are if the Bank can raise interest rates, they will. Therefore, a strategy buyers and sellers may want to consider is to lock in an extremely low pre-approval interest rate for the longest period of time possible, at your financial institution, sell now in a seller’s market, and purchase at a later date with your low-interest rate, when rates have risen.
Have a great week and stay safe!
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Joseph Marovitch has worked in the service industry for over 30 years. His first career was working with families from Westmount and surrounding areas, hosting children between the ages of 6 to 16 as the owner and director of Camp Maromac, a sports and arts sleep away summer camp established in 1968. Using the same strengths caring for the families, such as reliability, integrity, honesty and a deep sense of protecting the interests of those he is responsible for, Joseph applies this to his present real estate broker career. Should you have questions please feel free to contact Joseph Marovitch at 514 825-8771, or email@example.com