This week, one of our buyers asked us a question about a listing they had found using our online property search.
Q: I’ve found a home that meets all my criteria, in my neighbourhood of choice, and below budget! But there’s a catch – it’s being sold without legal warranty. Is it worth the risk to buy an older construction without a warranty of quality? Does the seller’s refusal to offer a warranty mean there’s a larger probability of hidden defects?
A: A legal warranty (a warranty of quality) is a document that protects a buyer against hidden defects such as structural issues, damage caused by leakages, or infestations. With a legal warranty, the sellers vouches that the property is free from any defect which would diminish its value or its usefulness to the buyer. The warranty does not cover defects which are clearly apparent to the buyer before the purchase (during the visits and inspection) – such as stained floors, holes in walls, or other cosmetic flaws. Instead, it refers to larger hidden issues which may emerge days or months after the purchase.
In some cases, the seller might choose to waive the warranty of quality.
There are several reasons why this might happen:
- The seller might have limited knowledge about the history of the building. For example, if the seller purchased the property without a legal warranty from the previous owner, they are unlikely to vouch for its condition.
- When a home is liquidated by an estate, it is usually sold without legal warranty.
- In cases of repossessions and foreclosures, a home will be sold without warranty.
- Elderly people who downsize their property are increasingly choosing to sell without legal warranty, so that they can move on to the next chapter in their lives worry-free.
In any case, the seller is legally obligated to declare all known problems associated to the property in the seller’s declaration. If it turns out they failed to disclose known issues with the property, they can be sued with or without a legal warranty.
When purchasing a home without legal warranty, the buyer agrees to take on any hidden risks associated with the property.
In return for the additional risk, the selling price is generally lower than that of a comparable property. Depending on the year of construction, a home or condo sold without legal warranty can cost between 8% to 11% less than one sold under warranty. If the value of the property is $ 300,000, the difference would be between $ 24,000 and $ 33,000.
What are the risks of buying a property without warranty?
A property without legal warranty is bought “at the buyer’s risk.” What exactly does that mean?
If the buyer were to discover a major issue with the home at any point after purchasing it, which was not disclosed in the seller’s declaration a legal warranty would allow the buyer to sue the seller of the home.
Without a legal warranty, the buyer would have to cover the costs of the repairs alone, or potentially sell the building at a loss.
Some examples of hidden defects include:
- damage which can only be discovered by excavation, such as infiltration or mould.
- structural issues behind the walls of the home
- weak beams
- issues that make the building un-livable, such as pest infestations
If you want to buy property without a legal warranty
If you are prepared to buy a property without legal warranty in exchange for the bargain, make sure to properly inspect the home beforehand. You might want to invest in a more thorough inspector such as a HVAC technician or a a foundation engineer.
Choose from the following associations, which offer qualified building inspectors:
- Association des inspecteurs en bâtiments du Québec
- Organisme d’autoréglementation du courtage immobilier du Québec
- Association nationale des inspecteurs et experts en bâtiments (ANIEB)
- Association internationale des inspecteurs immobiliers certifiés du Québec
If using a private inspector, make sure they:
- Have civil liability insurance
- Are in compliance with Quebec’s latest industry standards
- Use a recognized inspection service agreement
- Give you a written inspection report detailing all risks and potential issues
Remember to clarify to the inspector that the property is being sold without legal warranty.
Never use an inspector recommended by the seller of the seller’s agent, as this could lead to a conflict of interest.
Lastly, make use of the guidance of your real estate broker throughout the process, as they will be able to steer you away if a property seems too risky. They will also be able to help you negotiate, if further price reductions are necessary based on the findings of the inspection.