The Internet of Things in Real Estate Transactions

Photo showing phone and smart home tech

Smart devices connected to the “Internet of Things” can make life in your smart home significantly easier. But when buying or selling a home, those smart devices need to be considered and carefully included in the sale’s agreement and disclosures.

What is the Internet of Things?

The Internet of Things refers to the system of devices that can connect to the internet. Many items in your home may be connected to the Internet of Things, including a smart speaker, light fixtures, thermostat, refrigerator, home security system, or even a doorbell, to name a few. Through the Internet of Things, these devices can communicate with one another and with you, often making day-to-day tasks more convenient.

You might be using the Internet of Things without even realizing it—for example, if you use a voice-activated smart speaker to check the weather, use your phone to turn down your home’s temperature before leaving work, or use an in-home camera to check on your pet while running errands, you are using the Internet of Things.

Although smart devices often introduce new efficiencies to our daily lives, some internet-connected devices collect data about our daily habits and preferences. In many cases, that information is used to help technology fit into our lifestyles, making for a better experience. But sometimes, that data is shared with businesses over the internet or stored on the device itself. A seller including these devices in the sale needs to carefully consider what happens to that data.

Internet of Things – Privacy Concerns & Legal Issues

These increasingly complex appliances and systems can create privacy concerns and legal issues, especially when buying or selling a home. The issue that arises, often at settlement, is whether these devices are included in the property’s negotiated sale.

The legal argument is whether they are “fixtures” (i.e. items attached to the house in a manner that renders them a part of the real estate and presumed to be included) or “personal property” (the items such as furniture that can be removed by the seller before closing and presumed to be excluded).

Absent a well-negotiated Agreement of Sale, buyers often discover at the final walk-though that there was no meeting of the minds on whether Internet of Things components were included in the deal. I have had clients come to settlement on several transactions and say things like: “they took the speakers out of the wall” setting off sometimes heated discussions with the other party as some of these components can be expensive.

Internet of Things in an Agreement of Sale

As the old saying goes, “an ounce of prevention is worth a pound of cure;” here, the ounce of prevention is a carefully tailored and well-written sales agreement. The worst thing is to leave these issues ambiguous and up to argument at settlement.

Buyers and sellers must carefully negotiate upfront which devices and components will be included in the sale. The Pennsylvania Association of Realtors recently published a revised Standard Agreement of Sale attempting to address this issue.

Whether you decide to include internet-connective devices with your home, the sales agreement should acknowledge that some devices in the home may record data and share it with third parties, even without the seller’s knowledge. This is a first step to protecting both parties in the event of an unintended privacy violation.

If Internet of Things components are to be included, the Agreement should require sellers to disconnect their personal devices, like smartphones or computers, from any Internet of Things devices that will remain in the home. Sellers should also be expected to remove any data collected by those items from their personal devices and from the internet-connective device itself. These provisions ensure that both the buyer and seller’s privacy is protected after the sale is complete. Failure to comply with these provisions should result in legal liability that lasts well beyond closing.

The legal landscape around residential transactions is always evolving, which often adds complexity to an already stressful experience. Taking the time to review all documents with a real estate attorney can ease your mind while protecting yourself from unforeseen problems.

The attorneys at Fitzpatrick Lentz and Bubba, have extensive experience advising buyers and sellers of residential real estate and can help you avoid costly legal mistakes. For more information, please contact Steve Boell or any other attorney in our Real Estate, Land Use & Development Group.

Reprinted with permission from the Fall 2020 Edition of Network Magazine© 2020  All rights reserved. Further duplication without permission is prohibited. 

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