DISCLAIMER: This article is meant for educational purposes only and is not intended to be construed as financial, tax, or legal advice. HomeLight always encourages you to reach out to an advisor regarding your own situation.
One of the worst things about being a new homeowner is the fear that you’ve bought a house with problems not disclosed. You’re paying a significant amount of money to own a home that you love, but if the heater stops working on move-in day or the basement floods after a heavy rainstorm, of course it’s going to be upsetting! It’s like buying a used car that turns out to be a lemon.
Even if you were observant during your walkthroughs and had a home inspection, there’s a possibility that you’re buying a house with problems the seller didn’t disclose, or they might not have known about the issue!
If you find yourself in this unfortunate situation, don’t panic — because you do have options.
‘I bought a house with problems not disclosed’: Avoiding a disaster
If you discover the home you want to buy has undisclosed problems, the options you have will depend on where you’re located.
If you haven’t finished signing all of the closing documents and transferring the title yet, you don’t officially own the house — you’re still under contract.
This means you’re in a binding agreement with the seller of the home. Both parties have agreed on the home’s price and other terms and contingencies listed in the contract. When a property is under contract, the seller cannot enter another contract with another buyer because the buyer has agreed to purchase the property. That is, if the buyer doesn’t back out of the contract for one reason or another.
That said, if you haven’t closed on the house and you spot a problem during the final walkthrough, do not move forward with closing without discussing the matter fully with your agent. If you do, you may be burdened with the responsibility for fixing the problem. Hopefully the issue can be resolved and the transaction can continue … and if not, your agent will know if you have a right to cancel the transaction without penalty, depending on where the property is located.
Josh McKnight, who works with 79% more single-family homes than the average agent in Philadelphia, comments, “The home is supposed to be delivered in the same condition it was in, minus normal wear and tear. If you have a major issue — like the heat isn’t working, for example — the best option would be for the buyer’s agent to reach out to the listing agent and address the issue. Since the heater should be working based on the contract that we have, most of the time it gets worked out.”
It’s worth noting that the buyer’s agent’s next course of action typically depends on both the type of problem that’s discovered and your state’s disclosure laws.
Types of problems discovered
Natural hazards (also known as material defects) include, but aren’t limited to:
- Roofing problems
- Electrical and wiring issues
- Water damage
- Plumbing problems
- Foundation problems
- Issues with the land (only in some states)
Fortunately, most issues will be uncovered during the home inspection before the purchase is final, and the buyer can ask the seller to make repairs through a buyer’s repair request addendum.
“There are instances where you have a seller who’s not willing to make any more repairs because they already feel like they gave the house away because they didn’t get their asking price. So they may say, ‘I’m not doing that.’ There may be a paragraph built into your state’s agreement of sale that mentions timelines, where the buyer can submit a note to the seller asking them to remedy the problem, or they’ll withdraw the contract of sale,” McKnight warns.
Recap: If you haven’t closed on the home yet and you find problems that haven’t been disclosed, talk to your agent. They can submit a buyer’s repair request to the listing agent to see if the seller would be willing to fix the issues. If the seller refuses, you may have a clause in your contract allowing you to back out penalty-free.
What to do if you signed the contracts and officially own the house
Problems with the home can come to light after the papers have been signed and the keys are handed over. Sometimes it may take months or years for those problems to be noticed! As the new owner, you may be wondering if you’re stuck footing the bill for the repairs or if the seller is partially (or completely) responsible.
So what do you do?
1. Check for warranties
If one of the major systems in the home malfunctions, it may still be covered under warranty — be it a manufacturer’s warranty or if you or the seller purchased a home warranty. McKnight explains,
“The seller can purchase a term insurance policy that would start from when the home is listed to when the policy is transferred to the buyer. Buyers can also buy one at settlement to cover the same items for one year after they buy the home, which is highly suggested.”
2. Determine who is responsible for the repair
Both the seller and the listing agent are responsible for disclosing known issues with the home, and both are also responsible for trying to discover potential issues, but the home inspector might also be at fault. In some cases, if the purchase hasn’t closed yet, the buyer can even cancel the purchase contract if the home’s material issues aren’t properly disclosed.
If there are obvious problems but the seller did not disclose them (a leaking roof, cracked foundation, or shoddy electrical work), a court might rule that the seller deliberately did not disclose them. Likewise, if a seller tries to cover a problem area — like painting over cracks in the foundation to hide them — it could be used as evidence in a lawsuit.
Just about every state has laws in place that require sellers to inform a buyer of material defects in the property. This is usually done by completing a seller’s disclosure form, and it’s done before the transaction is complete. Sellers can sometimes still be held responsible in some “buyer beware” states, depending on how the contract is written.
Some states can hold a listing agent liable if they didn’t disclose problems they saw in the home or that the seller discussed with the agent. No, the listing agent isn’t required to get on their hands and knees to inspect the crawl space, but it is their obligation to tell the truth about what they know regarding the condition of the home. Some states will strip agents of their licenses if they are caught being deceitful to make a sale.
The home inspector could be held liable because they were tasked with finding problems that even the homeowner may not have noticed. In some instances, if they miss issues that another home inspector would notice, they could be held for negligence or even breach of contract.
Word to the wise: before making accusatory claims about who’s responsible for the problems you’re finding in your home, read your home inspection report thoroughly. Sometimes the problem you find falls within an area that the inspector didn’t have to include in their report.
3. Explore your legal rights
Each state has different disclosure requirements, and you must know what the disclosure laws in your state are. Most importantly, you will want to find out if your state employs a “caveat emptor” or “buyer beware” law.
Under this rule, it is the buyer’s responsibility — not the seller’s — to find any issues with the home. That means a buyer has to do research to uncover problems, such as an addition built without a permit.
Keep in mind that even if your state has the caveat emptor rule in place, the seller can still be held liable if they’ve lied about or deliberately concealed any significant problems with the home.
Burden of proof
Before you can take any legal action, you’ll want proof that any of the three parties mentioned above knew about the problem and purposefully withheld or hid that information.
For example, if the homeowner painted the ceiling, you might have believed that they were trying to spruce up the place in order to sell it. However, if you notice a water stain forming in a newly painted area after days of constant rain, you could use this as proof that the homeowner knew about the leaking roof.
Another example: if the basement has been freshly painted, you might think that’s another way for the homeowner to make it look more appealing. However, if you notice cracks forming in the paint shortly after moving in, the homeowner could have known about (and tried to conceal) potential structural issues.
Proof of monetary loss
If you find problems that need immediate attention, like the basement flooding after a torrential downpour, you should save your receipts for any work needing to be done (the cost to drain the basement, waterproof it, and the labor, for example) as a result.
4. Find legal representation
If you don’t already have legal representation and you want to look at your options for compensation, you will want to find a real estate attorney in your state. An attorney will reach out to the parties responsible for not disclosing problems with your new home to try to settle things out of court.
They can issue a letter of demand citing the defect and asking for reimbursement. The attorney might even ask the responsible party if they’d be interested in working out the problem through mediation. Of course, you can always take your case to court if the other options fail to work.
You aren’t always out of luck if you bought a house with problems not disclosed!
It doesn’t matter if the problems arise the day after you move in or a year after you move in; discovering that you bought a house with problems not disclosed can sour the joy of being a new homeowner. After all, owning a home is going to be expensive, and you’re going to be shelling out quite a bit of money over time. However, it would be best if you didn’t have to worry about coming up with the money to repair problems that weren’t disclosed when you purchased the house!
Thankfully, you can get those repairs taken care of one way or another — be it via warranties, mediation, or a lawsuit. Talk to your real estate agent about your options.
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