When Does a Real Estate Buyer Assume Responsibility for Discovering Defects?

A seller of real estate is required by Arizona law to disclose material information which affects the value of real property or would be considered important by a reasonable person when deciding whether to proceed with a transaction. Hill v. Jones, 151 Ariz. 81, 84–85, 725 P.2d 1115, 1118–19 (App. 1986). This applies to all material information known to the seller, but does not require the seller to know everything about the property. However, there are situations where a buyer may assume responsibility for discovering a defect, even if it is known to the seller.

The issue of assuming responsibility for discovering a defect was discussed in the case of Universal Inv. Co. v. Sahara Motor Inn, 619 P.2d 485, 127 Ariz. 213(App. 1980). The buyer is this case contracted to buy a motel in “as is” condition. The buyer inspected and approved the premises and closed on the property. After closing, the City of Tucson notified the buyer that the electrical system in the motel was in violation of city code, and the electricity service to the motel was discontinued after buyer failed to fix the electrical system, and the motel was closed.

The buyer responded by failing to make any payments on the promissory note. When the seller sued for performance on the note, the buyer responded with the defense that the seller had fraudulently concealed the defective electrical system. The evidence showed that the seller knew of the defective electrical system, and it was obviously material to the transaction.

The court found that because the buyer had inspected the property and should have discovered the defect, the buyer assumed responsibility for it, and the seller was not required to disclosed the defective electrical system. If, however, the buyer had asked the seller about the electrical system, it would have created a duty to disclose on the seller’s part.

The buyer assumed responsibility in this case because the defect was easily discoverable or patent. The buyer does not assume responsibility for discovering latent defects, even when he or she is given the chance to inspect the property, because these defects are not easily discoverable by their nature.

Buyers should carefully inspect the premises before agreeing the buy the real estate, and should specifically ask the seller about anything that is questionable. Sellers should fulfill their disclosure obligations, particularly when it comes to latent defects, but may not be liable for undisclosed patent defects if the buyer is given the opportunity to discover them.

Chernoff Law handles real estate litigation matters throughout Arizona. Contact us by calling 480-719-7307 to discuss your real estate matters.