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What is a Material Latent Defect in Real Estate?

What is a Material Latent Defect?

As defined by BCREA, a material latent defect means a latent defect that cannot be discerned through a reasonable inspection of the property, including any of the following:

  1. a defect that renders the real estate
    1. dangerous or potentially dangerous to the occupants,
    2. unfit for habitation, or
    3. unfit for the purpose for which a party is acquiring it, if
      1. the party has made this purpose known to the real estate professional, or
      2. the real estate professional has other wise become aware of this purpose;
  2. a defect that would involve great expense to remedy;
  3. a circumstance that affects the real estate in respect of which a local government or other local authority has given a notice to the client or the real estate professional, indicating that the circumstance must or should be remedied;
  4. a lack of appropriate municipal building and other permits respecting the real estate.

 

picture of a home exterior

 

Example of a Material Latent Defect

We have what we call a material latent defect. That’s something that isn’t readily visible to someone going through the property. An example would be a shifting foundation wall in a finished basement.

Then there’s things that are not latent, so visible to people going through the property. Not everybody that goes through a property knows how to look for things that may be problems with the house even if they’re visible. In that situation, the realtor is not required to follow the same rules. The realtor is not obligated to disclose that because it is not latent. It’s visible. 

An example of that would be you see clearly that there’s leaking coming from the kitchen sink. When the faucets turn on, it rushes onto the floor and in the cupboard, underneath the sink and then trickling onto the kitchen floor. That is a clear problem. That’s visible. The realtor is not required to disclose that. However the realtor may feel that this is an ethical issue not disclosing it.

Difference Between a Latent Defect and a Material Latent Defect

What is a Latent Defect? What is a Material Latent Defect? And who needs to make the disclosure?

Latent Defect

A latent defect is a defect not discoverable through a reasonable inspection and makes a property dangerous or potentially dangerous to the occupants or unfit for human habitation. At common law, a seller must disclose any known latent defects. Examples of latent defects include, but are not limited to excessively high radon levels in a home, a hidden mold infestation, or hidden structural damage impacting the integrity of a home. Sellers may satisfy their common law obligation by disclosing Latent Defects on the property disclosure statement, but can also provide separate disclosure.

Material Latent Defect

Realtors, on the other hand, have an obligation to disclose material latent defects as defined in the rules made under the real estate services act. Under the rules, a material latent defect is broader and includes specifically a defect that renders the real estate dangerous or potentially dangerous to the occupants, unfit for habitation or unfit for the purpose, for which a party is acquiring it. If the party has made this purpose known to the licensee or the licensee has otherwise become aware of this purpose, a defect that would involve great expense to remedy a circumstance that affects the real estate in respect of which a local government or other local authority has given a notice to the client or licensee indicating that the circumstance must or should be remedied and a lack of appropriate municipal building and other permits respecting the real estate. This definition is broader than that of latent defects at common law.

disclosing a defect on a form

Disclosing a Material Latent Defect

If a material latent defect known to the seller’s realtor, hasn’t already been disclosed by the seller, the seller’s realtor must disclose this to the seller and all other parties to the transaction prior to the seller accepting an offer. If the seller does not allow this disclosure, the seller’s realtor must refuse to provide further trading services to the seller. The Seller’s Disclosure of Material Latent Defects form advises sellers to make further inquiries on their disclosure requirements, helps ensure sellers are aware of their realtor’s disclosure requirements and enables the seller to make these disclosures so that the realtor may continue to act for the seller.

Understanding Seller’s Material Latent Defect Form in Real Estate

So how do we report these material latent defects in real estate when selling your property?

The Seller’s Disclosure of Material Latent Defects standard form is a way for sellers and their realtor to inform by and their agents of any material latent defects that are known prior to an offer being made. This form helps to ensure consumers are aware of what their realtor is required to disclose, that their disclosure obligations differ from those of their realtor and provides instruction for their realtor to disclose the information.

Should I complete the form if I’m not aware of any material latent defects?

As a seller, after consulting your realtor, if you are not aware of any material latent defects, you may want to make the disclosure acknowledging that you are not aware of any known material latent defects in respect to the property. This helps document this important information for buyers and may influence their decision to make an offer to purchase your property.

What if I know of a material latent defect as a seller?

If your realtor is aware of a material latent defect, to be able to work with you, your realtor must make the disclosure as a part of your realtor’s due diligence. They will ask you about any known material latent defects. This form provides you the opportunity to make the disclosure and provide an explanation or describe the nature of the material latent defect. This disclosure informs realtors and buyers. If there are any known material latent defects and helps them understand the current condition of the property, this information might help buyers decide whether they wish to make an offer on the property and what additional due diligence they may want to consider. While sellers are not required to complete a Seller’s Disclosure of Material Latent Defects form, the realtor’s obligations to disclose material latent defects is mandated under the real estate rules and sellers have obligations at common law to disclose latent defects. By completing this form, both obligations can be satisfied and the seller may also minimize the risk for potential claims after the sale of the property.

What happens if new information becomes available during the listing or sale of a property?

For example, what if it was discovered that renovations were done without a permit, or there is a mold infestation? It is best practice to have the seller amend the Seller’s Disclosure of Material Latent Defects form to reflect the current knowledge of the seller. This helps the seller avoid making a misrepresentation. If the Seller’s Disclosure of Material Latent Defects form is incorporated into the Contract of Purchase and Sale. If new information becomes available after an offer is accepted, the seller should seek legal advice to help them determine their disclosure requirements. As a seller, if you are unsure of your disclosure obligations, you should speak to your realtor or obtain legal advice. 

How Disclosures Affect Your Real Estate Sale

In my experience, it’s always best to disclose more information about the property versus less because it establishes trust up front. If you know something that’s visible but not something that’s going to slow down a buyer from writing an offer because they don’t even notice it even though it’s visible, then it would be best to disclose it before they offer. 

That way if the buyer requests a property disclosure statement or does a home inspection, there will be no surprises. Otherwise those defects will become very clear to the buyer because they’ll be brought to their attention at that point. Then, the buyer may not trust the seller if they wrote the offer and had it conditionally accepted and did not have these items disclosed beforehand. They may be at a point where they do not trust the seller and could potentially back out of the deal.

If you have any questions about the seller’s disclosure of material, latent defects form, or other forms used in a real estate transaction in BC, ask your local realtor. Looking for a Vancouver real estate agent? Contact Leo Wilk today.

For more information on real estate market in Vancouver, current trends, buying a home or selling a home, contact Leo Wilk – Your Top Vancouver Realtor

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