When buying a home, most buyers spend countless hours scrutinizing every aspect of the property. While we’d all like to focus on a home’s best features, we are only human and our risk-averse nature often causes us to focus even more closely on what could be wrong. A dated kitchen, a leaky faucet, cracked flooring, or peeling paint are all examples of defects that buyers can easily notice during a showing – they are visible. These issues are known in real estate as patent defects – items that can be identified through a reasonable inspection of the property.
However, some of the most significant issues are the ones that cannot be seen by the naked eye. Hidden water damage, faulty wiring or plumbing behind walls, and concealed structural concerns may not be apparent during a typical walkthrough. These items are known as latent defects, and understanding these issues and the differences between patent and latent defects is critical for buyers (and sellers). They can impact negotiations, are critical in due diligence, and even have legal obligations associated with them which can open up liability if not handled correctly.
The distinction between a patent and latent defect is important not only because it can affect a property’s value and desirability, but also because different disclosure obligations and potential liabilities may apply.
What is a Patent Defect?
It was touched on above, but by definition a patent defect is any defect a buyer is reasonably expected to identify through their own inspection and due diligence. As such, a seller need not disclose any patent defects in the sales process, as the legal concept of “caveat emptor” (buyer beware) applies. Like most legal definitions, “reasonable” is not always perfectly clear. A useful rule of thumb is to think of it as any issue that can be seen. Examples include missing shingles on a roof, cracked windows, scuffed flooring, broken handrails, and leaking faucets. An important note is that actively concealing a defect without disclosure is prohibited. For example, using fresh paint to cover up a water stain caused by an ongoing issue is not a solution.
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What is a Latent Defect?
Conversely, the definition of a latent defect is a hidden problem that would not or could not be visible through a normal visual inspection. Again, we have a legal definition that leaves room for interpretation. In practice, latent defects are often found behind walls, beneath floors, underground, or within systems that cannot be examined without invasive testing. Some common examples of latent defects are mould inside wall cavities or inaccessible attic spaces, structural damage concealed during renovations, electrical wiring issues or plumbing leaks inside of walls, or issues that would be seen in a basement that is no longer visible because it has been finished.
Read our post: What to Look For When Buying a Home for more tips and advice.
Patent Vs Latent Defect in the Real World
In practice, it has been established that patent defects fall under the purview of the buyer to identify and understand, and a seller is not responsible for these issues in a transaction. Latent defects, however, become more complicated, and if a seller is aware of a latent defect that a buyer could not reasonably identify, the seller has an obligation to disclose these defects, and this obligation is amplified if the defect could make the property dangerous or unsafe for habitation. Failing to do so could expose a seller to significant legal liability.
The reality is that every situation is unique and can often be quite complex. Legal advice should always be sought when significant defects are involved, particularly when those defects may be latent.
How Are Defects Handled in Your Purchase
Imagine a scenario where a bathroom on the second floor above the living room has a minor leak. There is likely staining on the ceiling. If a seller chooses not to paint that and leaves the stain, it may make the house less desirable, but the buyer can see the patent defect, investigate the root of the problem and identify a solution during the purchase process, and determine whether the value of the house justifies purchasing it despite the issue. Alternatively, if the seller simply paints over the stain without rectifying the cause of the issue and fails to disclose it, the seller may have concealed evidence of what would otherwise have been a patent defect. Three months after closing when the leak gets to a point where it stains the ceiling, the water damage and issue is discovered, and the seller could be liable for failing to disclose or attempting to conceal a latent defect.
In many cases, it makes sense for a seller to address a defect before listing the property. An experienced real estate agent can help evaluate the costs, risks, and potential benefits of doing so. Regardless of severity, latent defects may require disclosure, and failing to do so could create significant legal liability.
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The Legalities of Latent Vs. Patent Defects
The obvious challenge here becomes proving if a seller was aware of a latent defect. The legal obligation no longer applies if a seller is truly unaware. The established legal test asks two questions: is the issue truly hidden, and did the seller actually not know about it? If the answer is yes and no to those two questions, the issue falls back into “caveat emptor” – buyer beware.
Situations become more complicated when a seller claims they were unaware of a defect but arguably ought to have known about it through reasonable investigation. In these cases, professional legal and real estate advice is essential. While tools such as “as-is” clauses may offer some protection, they can also affect marketability and sale price.
For a buyer, due diligence still matters regardless of the legal obligations which fall onto a seller. Conducting a home inspection is almost always advised, and a buyer should always ask about and review seller disclosures, investigate permits and renovations, inquire about previous work that was done and when it was done, and consult specialists when potential issues are identified. The reality is however that all this due diligence may not uncover every hidden issue, but it remains a critical tool available to a buyer. Doing so correctly will allow them to weigh the risks in context, and determine if they are worth it.
Final Thoughts
Understanding the difference between patent and latent defects helps buyers evaluate risk, understand the product they are purchasing, and make the most informed decision possible when buying a home. Visible, patent defects are often not deal breakers, and a home that appears perfect isn’t necessarily without latent hidden defects. The key is understanding what is available to be seen, investigating what you might not be seeing, and conducting the appropriate due diligence before making an informed purchase. By asking the right questions and consulting the right professionals, a buyer can make an informed decision based on facts as opposed to assumptions.
Whether you’re thinking about buying or selling a home, it’s important to do your due diligence and know your rights. That’s where we come in. Get in touch with Toronto Realty Group today by filling out the form below, giving us a call, or sending us an email directly.
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