Maybe you think you’ve encountered the perfect piece of real estate. It’s in a great location, it meets your size requirements and its within your budget. Once you’re ready to close on the deal, however, you discover the home has a serious latent defect that could seriously impact both its utility and long-term value.

This presents a number of problems for both the seller and the prospective buyer. After all, nobody wants to be accused of attempting to sell a defective home to an unsuspecting investor. And, no investor wants to be saddled with a deeply troubled property costing more in repairs or remediation than it’s worth.

A tale of two perspectives

If you discover a defect with the property you’re hoping to acquire, you have some hard decisions to make. You’ll have to determine whether you want to still go through with the purchase, the type of accommodations you’re going to ask for and more.

Sellers of defective homes also face a number of tough choices. However, they can downplay the potential for reputation damage by first performing due diligence on properties they’re preparing to sell.

Handling defects as a buyer

Before you close on a real estate transaction, it’s exceptionally important you perform due diligence by examining the property for any potential defects. Defects are usually caught in the appraisal process, performed by the appraiser verifying the value of the asset for your lender.

If you’re concerned about a specific part of the home, however, it may be worthwhile to pay a contractor to have a look at it before you close the transaction. For instance, if you suspect roof problems, hire a roofing specialist to provide you with an analysis of the roof prior to closing the deal. This will provide you with an expert opinion on the situation and an estimate of the cost necessary to repair potential damage.

Once you’ve identified a defect with the home you’re thinking about buying, decide whether it’s a deal breaker. If it is, you’ll have to notify the seller immediately, and negotiate a way to exit your contract. There’s a good chance the seller is unaware of the defect and will want to address it as soon as you bring it to their attention.

If you decide to continue moving forward with the purchase, you’ll have to determine what kinds of accommodation you’re going to ask the seller to provide. You may want to ask them to address the defect prior to closing the sale. Alternatively, you may want to handle it yourself. In that case, asking the seller to discount the agreed-upon price for the value of the repair is usually the most prudent option.

Dealing with defects as a seller

Chances are, you think your home is in prime condition. That’s why you’re listing it for its market value!

As a real estate investor, your reputation is everything. If you inadvertently sell a defective home, you may face serious damage to your reputation as a real estate professional. That’s why it’s so important to perform due diligence prior to listing your home, and accurately disclosing all potential concerns buyers may want to know about.

There are several legally required disclosures you’ll have to make when selling your home. Depending on the province and municipality, you may have to disclose violent deaths in the home, water damage, radon levels and more. Regardless of what’s legally required, you should always err on the side of transparency. It’s always better to provide prospective buyers with a clear idea of the property they’re purchasing.

Even homes with serious structural defects still have value. You may just have to adjust your earning expectations when selling a home that’s seriously troubled or with known defects.

Common major home defects

Every home has defects and several of them are major deal breakers. That said, buyers and sellers alike need to be aware of the defects they’re likely to encounter. Not only is this helpful for fixing them, it’ll help you understand how they impact the value of a home. Here are some of the common and more serious defects both buyers and sellers should be on the lookout for:

Roofing problems: Ceiling stains, missing shingles or rotten gutters are all indicative of serious roofing problems, which can be extremely costly to repair. Roof replacement is a fairly expensive process. If the roof needs to be replaced in the next year, ensure it’s accounted for in the final purchase price.

Rotten wood: Rotten wood can either be inside the home’s structure, or along areas surrounding showers, sinks and tubs. Rotten wood indicates a whole host of future problems, ranging from mold infestations to serious structural concerns. If there’s rotten wood in a piece of real estate you’re selling or buying, have a professional analyst provide you with an assessment of the damages.

Electrical issues: It’s all-too common for homeowners to attempt to perform electrical tasks on their own. Unfortunately, these attempts at home improvement rarely pan out the way they’re intended. If there are any instances of electrical wiring not up to code, make sure they’re dealt with prior to closing the transaction.

Environmental hazards: Environmental hazards can impact a home’s value, including the presence of radon gas, a mold infestation or proximity to a flood plain. Get an environmental analysis of the home, both inside and out, prior to closing any real estate transaction.

None of these serious defects will necessarily make or break a real estate deal. The most important thing is for both buyers and sellers to maintain a clear line of communication with one another, and approach defects rationally and responsibly. While it may make for an uncomfortable conversation, discussing defects before they become major issues can help save both parties money, frustration and inconvenience.

Just like no seller wants to face the prospect of a defect, no buyer should be totally dissuaded by one. Most problems can be fixed. It’s just a matter of who undertakes that responsibility and what impact it has on the sale price of a property.