Real Estate Talk: Latent defects

What is unseen can become a costly issue

By Joseph Marovitch

Updated June 1, 2023

Clients often tell me that they are not worried about latent defects because they had an inspection by a certified inspector. They are confused. A latent defect is a hidden defect in the home that a certified inspector did not see nor search for. General home inspectors are mandated to inspect a property and report only what they see.

Home inspectors are not responsible for what they cannot see. The inspector will search for cracks around and in the house. They will search for stains that indicate water infiltration and markings for possible mould. The inspector will turn on the faucets to examine the water pressure. They will look for loose railings, rotted mouldings and roofs. They will examine plugs to ensure they are grounded and do not cause harmful shocks. If the inspector has a thermal imaging device, they will check for heat loss, live wires and lack of insulation.

General home inspectors are mandated to inspect a property and report only what they see.

Inspectors will not look for cracks in the lining nof the fireplace or the foundation. They will not check the wiring in the walls nor the plumbing under the floor. They will not open the walls to see if there is vermiculite or asbestos waiting.

The inspector is only responsible for what they can see. They may find clues to hidden defects but then the inspector will tell the buyer to get a foundation, roof, pool or mould specialist to examine the issue further.

Hidden defects are issues that would not normally be visible, reduce the value of the home, and are not known by the seller.

The issue is that a home that is sold with warranty means that the seller is responsible for that hidden defect even after the property has been sold. Not only is that seller responsible, even if they do not live in that house, but the owner before them is responsible as well, and so are all the owners before that who are living. If there was an owner who sold the property without warranty, they are not responsible.

So, if you purchase a home with a fireplace and move in, then one day make a fire in the fireplace only to discover that your house is filling with smoke on the second floor due to a tear in the lining of the fireplace, you can hold the previous owner responsible.

‘The issue is that a home that is sold with warranty means that the seller is responsible for that hidden defect even after the home has been sold.’

In terms of remedy, the buyer can have the seller refund part of the sale price, pay for reparation or, in some cases, the buyer can cancel the purchase and ask for their money back. In theory, these remedies are all possible. In practice, it is never that easy. If the buyer contacts the seller years after the purchase, the seller may refuse the buyer’s demands. In this situation, the buyer would have to sue the seller and wait for the judge to decide. This process takes time, energy and money. However, if the issue is serious, expensive to repair and not the fault of the buyer, then we do what must be done. When you sell a house, it must be usable.

Sellers can choose to sell without warranty, but this causes property to be sold at a discount for the buyer to take the risk that the house is in good working order. Homes are sold without warranty when they are inherited. The seller never lived in the house, so they do not know if there are issues.

Another reason to sell without warranty is that the house is very old, the seller does not maintain it and believes there may be hidden defects. These sellers are prepared to sell without warranty for a lower price for the peace of mind that the buyer will never come back at them. Selling without warranty can also take longer to sell.

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State of The Market

CPI today (inflation rate) 4.41%
Bank of Canada interest rate 4.5%

Buyers should get a mortgage pre-approval now. The Bank of Canada plans to raise interest rates if inflation increases due to the economy picking up momentum, according to a recent article in the Financial Post on May 31. The Fed raised interest rates to slow down the inflation rate, however, with pent-up demand from consumers who are recently able to go out and spend on restaurants, home items, travel and such, prices are rising.

‘… if a buyer can get a lower interest rate on their mortgage before rates rise in January 24, this would go along way in reducing carrying costs which may remain high for a while longer.’

Rising rates will not necessarily reduce demand, or prevent property values from rising, since demand is reaching a peak and people must and are in a position to purchase. However, if a buyer can get a lower interest rate on their mortgage before rates rise in January 2024, this would go along way in reducing carrying costs which may remain high for a while longer.

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