With housing inventory still lagging, sellers continue to have the upper hand.
What is a latent defect?
A latent defect, also referred to as an inherent defect, is damage to real estate property or a construction project that is not apparent upon initial inspection and is discovered when the property or project is turned over to new owners.
A latent defect may be due to damaged construction materials or poor workmanship or design. A potential buyer would not notice the defect upon first inspection. The damage exists but is concealed or not apparent until later.
Latent defects could become a factor in property insurance coverage and liabilities. A hidden defect or imperfection in a construction project could be grounds for breach of contract or negligence on the part of the contractor.
There are a number of latent defects that a homeowner may not be aware of prior to buying a property. Although these defects are often excluded from coverage in property insurance policies, some providers have insurance policies or riders that are designed to protect homeowners from such events.
Both patent and latent defects in a property should be reported to the contractor within a specified period of time (the “defects liability period”) after a new owner takes control of a property. The contractor then should be given the opportunity and time to remedy the damage or pay for the total damage cost, whichever is deemed appropriate by both parties. This is important because the owner will be held responsible for maintaining his property, even though he had no knowledge of the original construction issues.
Latent defect example
Several months after buying a newly built house, a couple discover a bedroom window where water seeps through every time it rains. They learn that the window was not properly installed, causing the leak. The couple never noticed the faulty window before they closed on the house because it was always sunny out when they looked at the place.
They reached out to the contractor, who returned to the home to remedy the issue because it had been discovered within a period of time outlined in the contract.
Are you a new homeowner? Find out how much insurance you should buy to protect your house from latent defects and other losses.