What should you do if you discover a defect in the home you're buying after you've removed the inspection contingency?

Most buyers hire qualified professionals to inspect a property before they buy it. The purchase contract usually includes a contingency that allows the buyers to do inspections. Depending on how the contingency is written, the buyers might have the right to withdraw from the contract without penalty based on these inspections. Or they might have the right to ask the sellers to repair the defects.

In some cases, buyers ask for nothing from the seller. They purchase the property in its "as is" condition regarding the defects that have been disclosed to them, either by the seller or by their inspectors.

The first course of action if you discover a defect after you've removed the inspection contingency, or after the deal closes, is to review the transaction documents and the inspection reports.

One buyer became upset when he found water in the basement of his new home after the first heavy rain. He called his agent who reviewed the transaction file, including the seller's disclosure statement. Many states, like California, require sellers to disclose property defects to buyers when they sell.

In this case, the seller had disclosed that water accumulated in the basement after heavy rains. Furthermore, the buyer's inspector found evidence that water had accumulated in the basement and mentioned this in his report. The buyer had been aware of this condition when he bought the property, and bought the property "as is" regarding this condition.

HOUSE HUNTING TIP: It's not always clear who's responsible for repairing defects. The purchase contract should provide some guidelines. For example, the contract may include a clause that requires the seller to maintain the property from the time the contract is negotiated until closing occurs. If this is the case, and the furnace breaks down after the inspection contingency is removed, the seller may be responsible for fixing it.

Some purchase contracts include a seller warranty provision. The specifics will differ from one contract to the next. But, such a clause often states that certain systems, like the plumbing, roof, heating and cooling, will be operative at close of escrow. If a covered system breaks, the seller may have to fix it.

It's usually advisable to try to amiably work out any disputes regarding defects. In fact, your purchase contract may require that you mediate a dispute before taking it to the next level.

Your contract may also include an arbitration provision. If so, arbitration rather than lawsuit could be your method of dispute resolution. Even if your contract does have an arbitration clause, you might be able to resolve a defect issue in small claims court if the damages aren't too large.

Home warranty policies, which are available in most states, can provide an easy solution to problems involving property defects. Home warranty policies--which can be purchased by either the seller or buyer--cover a home's system. If something breaks, the warranty company fixes the problem.

These policies have exclusions, and pre-existing conditions are usually not covered. But, for the minimal cost of a service charge, a defect can often by repaired at no additional cost to either the buyer or seller.

THE CLOSING: If you're in doubt about who's responsible for repairing defects, ask your real estate agent or consult with a knowledgeable real estate attorney.