When Something Goes Wrong: Damage vs. Defect in a Real Estate Deal

Why Timing Matters in Real Estate

During a real estate transaction, understanding who is responsible when something goes wrong depends heavily on when the issue occurs. The responsibility can shift depending on whether the buyer still has conditions in place or has waived them.

Before Conditions Are Removed

• The buyer retains flexibility.

• If new damage or a serious issue is discovered, the buyer can renegotiate or terminate the agreement without penalty.

Examples:

• A home inspection reveals a major plumbing issue.

• A storm causes significant damage to the property.

In both cases, the buyer can choose not to proceed or adjust their terms.

After Conditions Are Removed

• The buyer is now firm on the purchase.

• If new damage occurs (e.g., hailstorm, fire, flood), the seller may be responsible to restore the property or assign the insurance proceeds.

• If a defect is discovered:

  • If the seller knew and failed to disclose, it may be considered a latent defect, which could have legal consequences.

  • If the seller did not know, and the defect wasn’t visible, the buyer generally assumes the risk.

Damage vs. Defect: Know the Difference (Google Sites-Friendly Format)

🟩 New Damage

• Example: Hailstorm destroys shingles

• Timing Impact: Happens after the buyer goes firm

• Responsibility: Seller (often through insurance)

🟨 Latent Defect

• Example: Collapsed sewer line that was hidden

• Timing Impact: Discovered post-condition removal

• Responsibility: Seller, if they knew and didn’t disclose

🟧 Patent Defect

• Example: Visible cracked tiles

• Timing Impact: Should be noticed before waiving conditions

• Responsibility: Buyer — assumed to have seen it

🟥 Undiscovered Defect

• Example: Hidden rotting subfloor unknown to all parties

• Timing Impact: Found after waiving conditions

• Responsibility: Buyer — assumes risk unless misrepresentation is proven

Best Practice Reminders for REALTORS®

• Educate your buyers: After conditions are waived, reversing the deal is very difficult.

• Encourage proper inspections: Most defects surface during the condition period.

• Ensure disclosure: Sellers should be encouraged to disclose anything they know. Non-disclosure may be seen as concealment.

• Document everything: Keep thorough notes of discussions, repair receipts, inspection reports, and all communications.