Disclosure in Real Estate can be a murky subject at times, and although the law does require a seller to disclose any latent defects within a property, the reality of enforcing this law really puts more onus on the buyer than a lot of people think.
“Caveat Emptor” or Buyer Beware has never been truer than when it comes to transacting in real estate, and knowing what to look for and having strong representation are crucial to not making what could be a life changing mistake.
So what exactly are the legal responsibilities surronding disclosure and how do you avoid getting involved in any legal complications when purchasing a home?
Patent Defect Vs. Latent Defect
First and foremost, it’s imperative to understand the differences between a patent and latent defect and gain some insight into the responsibilities of both the Seller, Buyer and agents.
A patent defect in a property is one that can be detected by a potential home buyer or their home inspector by reasonable observation and inquiry. The most important thing to note here is that a Seller is not required to disclose a patent defect as it is generally assumed to be self-evident. In reality, many of these items are not as evident to an untrained eye as you might hope, and certainly always crystal clear to many first-time home buyers, but it is crucial to catch any of these ahead of submitting an offer. As is probably known to most people that have already transacted in real estate, a home inspection is your first line of defense here and making sure you have a knowledge agent, and inspector can save you a ton of money and hassle down the line.
Did you know we have a podcast? Listen to The Last Honest Realtor on our website or anywhere else you get your podcasts.
Perhaps more importantly, a latent defect is one that would make a property unfit for habitation, dangerous, or potentially dangerous, and is generally not apparent to someone exercising reasonable care in the inspection of the property. These are the defects that can really cause big problems and can often create the murky legal situations I mentioned previously.
Examples of Latent Defects
The biggest of these latent defects include;
- Structural Problems: Issues with the foundation, roof, or other structural elements of the house.
- Water Damage and Drainage: Past flooding, leaks, or issues with drainage.
- Mold and Toxic Substances: Known mold growth or other hazardous materials like lead-based paint or asbestos.
- Pest Infestations: Past or ongoing problems with pests, like termites or rodents.
- Environmental Hazards: Known risks from the property’s location, such as flooding or soil contamination.
- Significant Repairs: Information about major repairs, especially those requiring permits, such as major work on the roof or HVAC systems.
A Loophole?
The good news is that all latent defects must be disclosed by the seller and/or the seller’s agent, to any and all interested buyers. The tricky part here is that the seller is only obligated to disclose these items if they are known to them. And although blatant ignorance is not an excuse in the eyes of the law, it can often be very difficult to prove without a doubt that the seller was aware of an undisclosed latent defect.
Planning on selling your home soon? Here are a few more posts you might find helpful:
- What Not to Fix When Selling a House
- How Many Showings Does it Take to Sell a House?
- Home Appraisal Vs. Market Value
Disclosures are in the Best Interest of Both Parties
Nobody wants to end up in litigation as it is costly and incredibly time consuming for all parties involved regardless of the result, so what’s the best way to avoid this potential pitfall?
Well, from a Sellers perspective, it’s crucial to know what you are obligated to disclose and be as honest as possible in your disclosure. Despite what some Sellers or even agents believe, simply putting a “sold as is” clause into the listing or an offer does not absolve you of further responsibility.
Failing to disclose a latent defect might be considered misrepresenting the state of the property and lead to litigation and even if the seller does not have direct knowledge of a latent defect, they may still be liable if they were willfully blind about the existence of the defect.
Legalities like this are just one reason why it’s best to work with an experienced Realtor. But can you represent yourself in a transaction? Read our blog What Does it Mean to Be a Self-Represented Party in Real Estate.
Back to “Buyer Beware”
Of course, a seller does not have to disclose a patent defect to a potential buyer – it is a case of “buyer beware” – the buyer is expected to do their own inspections and due diligence before fulfilling or waiving conditions in the accepted offer and entering into a binding Agreement of Purchase and Sale.. However, a seller should not attempt to conceal the patent defect or “buyer beware” may not apply.
As a Seller your real estate agent may ask you to provide information about the property in the form of a Property Condition Statement or SPIS, that is intended to help them support you in selling your property and identify any disclosures you are required to make by law.
This said, it’s also important to note that not all information you share with your listing agent needs to be or should be shared with buyers… so it should be clear which information in the statement you are completing solely for your agent, and which information needs to be or should be shared with buyers.
Real estate transactions can be complex. Here are a few more posts to help you demystify things:
- What’s Negotiable When Selling Your Home?
- Can You Sell a Condo with a Special Assessment?
- Why Hiring Your Friend to Sell Your Home Might Be a Bad Idea
From the Buyer’s Perspective
When buying a home, you must be proactive to reduce the risk of purchasing a property with any undisclosed problems. As mentioned previously, one of the most important steps is commissioning a thorough home inspection. Buyers should also ask direct questions about the home’s history, previous repairs, and any recurring issues, and request maintenance records where available. When available, review the Property Condition Statement or SPIS carefully, looking for vague or incomplete answers. If something seems off, request clarification or seek legal advice.
Do your due diligence ahead of making an offer!
If all else fails and for some reason, after all your efforts, you do uncover a hidden defect after the sale has closed, you’ll want to make sure to have all your documentation stored safely— always keep any photos, inspection reports, contractor assessments, and any correspondence with the seller, safely on file for reference.
You have only two years to make a claim against a Seller in Ontario, so you must act quickly. As with finding good representation within an agent, you’ll now want to make sure you have a reputable real estate lawyer who has experience in property defect litigation.
From here, it truly depends on the situation, but you may have grounds to pursue compensation for breach of contract, negligent misrepresentation, or even fraud.
Do you have questions about buying or selling real estate in Toronto? Here are TRG, we’re always happy to help.
Get in touch directly by filling out the form on this page, calling us at 416.642.2660, or emailing admin@torontorealtygroup.com.
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