Real Estate Talk:
Latent defects

What is unseen can become a costly issue

By Joseph Marovitch

Updated February 21, 2024

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 the walls for heat loss, condensation, 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 of the fireplace or the foundation. They will not check the wiring in the walls or 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. The inspector may find clues to hidden defects and then indicate to 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 a home that is sold with warranty means 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. 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.

‘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.’

Reasons for a home to be sold without warranty include:

1. The property was inherited and the seller does not know the condition.
2. The buyer is a real estate developer and the warranty is not required since the property will be gutted anyway.
3. The seller is moving to a retirement home and does not want to be bothered.
4. The seller is moving out of the country and does not want to be bothered.

Two other issues should be noted:

1. If the current seller is selling without warranty but the previous owner sold with warranty, it can be stated in the new deed of sale that the prior owner guarantees the warranty.
2. If the seller sells without warranty, a hidden defect is found and it can be proven the previous owner was aware of the defect, the previous owner committed fraud. Therefore, the without warranty clause is invalid and the previous owner is liable.

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.

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State of The Market

Bank of Canada interest rate: 5 %
Canadian prime rate: 7.2%
Canada inflation today: 2.9 %

Some good news today! The inflation rate has fallen from 3.4% to 2.9%. However, caution applies. According to Darren King, a senior wealth advisor at National Bank Financial, in a February 14 article from BNN Bloomberg, the inflation rate may be short-lived. If the rate remains below 3%, Mr. King states there may be an interest rate reduction by the spring of 2024.

‘… it is not lulls in CPI that will determine fluctuating interest rates. It is consistent lower rates that will solidify the decision to move up or down.’

Consumer price index (CPI) or inflation reduction is a result of momentary lower gas prices. However, it is not lulls in CPI that will determine fluctuating interest rates. It is consistent lower rates that will solidify the decision to move up or down. Lower rates mean rising values, and more supply and demand. Higher rates mean lower values, demand and less inventory.

Lower rates and inflation derive from economic and political stability. We do not have this yet, so we must make decisions based on what we know presently, such as:

1. Is buying or selling critical right now?
2. Can I afford to wait?
3. Can I afford not to sell now?
4. Can I afford to gamble the market will be better later or do I decide with certainty now?

For many, a decision to buy or sell is more than an investment. It is due to work relocation, downsizing, and upsizing requirements. For those who must move, it is a matter of purchasing what they can afford, buying at the right price, selling at the right price, and being able to sell what is purchased, easily. There is always a market of buyers and sellers who just need proper knowledge or expert and experienced professional guidance.

Have a great week!

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Other articles by Joseph Marovitch