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What To Do When Buyer Cancels For Property Defects

In this #TitleTalk, Jim Brown, Esq. discusses how to apply the Johnson v. Davis test to determine whether the buyer has to disclose a material property defect.

What’s next for the seller, when the buyer cancels during inspections for material property defects?

The rule is the case of “Johnson v, Davis”, which is also restated on line 250 of the 10/14/2021 Florida FAR/BAR “As Is” Purchase Contract.  

A seller has a duty to disclose a defect when:

  1. The defect is known to the seller.
  2. The defect materially affects the value of the property.
  3. The Buyer can’t discover the defect during reasonable and typical inspections.  

Note: #3 is not exactly what the contract says, and the actual rule from the case is much longer, but this is a reasonable summary.  Please call me if you have any questions.  

Case Facts: An eight-person, big and heavy dining room table and chairs sat on an area rug which was covering porcelain tile on a slab. The inspector did not move the table and chairs. 

However, at the walk-through, the rug, table and chairs were gone. There was a massive crack in the tile that was revealed, and many tiles were loose. The buyer was distraught and wanted to cancel the purchase. An investigation showed the slab was shifting and had significant defects that required expensive repairs.  

The question is, did the seller have a duty to disclose the defect to the buyer?  The answer is, yes.  

Let’s apply the Johnson v. Davis test:

  1. The seller had knowledge, they put the rug over the crack because it was hideous.  
  2. The repair to the defect was several thousand dollars, so it materially affects the value of the property.
  3. And I believe a buyer would not discover it by doing reasonable inspections.  

The bigger problem is, what’s the next step for the seller… and the agent?

So the saga continues; the seller tells the realtor, let this buyer go, get the tile re-adhered to the slab, and we’ll re-list the property.  The realtor calls me and says what do I do?  

The answer is easy: let the contract be the bad guy.  

Refer the seller to line 250 of the contract and tell the seller they have three options, now that you are aware of the defect:

  1. Fix the property for the buyer (or better yet credit them),
  2. Disclose the defect in writing to future buyers, or
  3. Find another agent (if they insist on concealing and not disclosing the defect) because you can’t breach your professional obligation. Because you may be deposited later and have to tell the truth under oath.

Written and reviewed by Jim Brown, Esq. Form reviewed: Florida Realtors FAR/BAR “As Is” Contract.

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