Real estate laws vary by state, as do standard real-estate sales or purchase contracts. Although laws vary, there are common rules that apply in most states. Generally speaking, a seller is obligated to disclose any known property defect to the potential buyer — a failure to do so makes the seller more vulnerable to a future lawsuit.
Although regional real-estate laws might dictate the extent to which a seller is obligated to provide full disclosure to the buyer, another consideration is the actual purchase contract. The terms of the purchase contract might specifically address the situation or make provisions for such a defect. For example, if the initial sales contract specifies that the heating system or kitchen appliances must be in working order, the seller is obligated to repair said items should they break down after he has signed the sales contract and before the close of escrow.
To lessen the possibility of a future lawsuit, it's in the seller’s best interest to disclose in writing any defect or material matter regarding the property, prior to the sale. Should the seller discover a problem with the property after signing a sales contract, but before the close of escrow, she should reveal that to the buyer. Depending on the purchase contract, a buyer typically has the right to cancel a sale if the property isn't in the same condition at the close of escrow as when he initially signed the purchase contract.
Purchase contracts typically have an inspection period, which gives the buyer the opportunity to inspect the property prior to closing escrow. Even if the seller is tempted to conceal the problem, there's a chance the buyer will discover the problem during the inspection period. Normally the buyer has the right to request repairs by the seller during the inspection period, and if the seller refuses to make the repair, the buyer has the option to cancel. However, the actual terms and conditions of the inspection period vary by contract.
Depending on the purchase contract, the buyer typically has the right to make a final walk-through before the close of escrow. A buyer normally expects the property to be in the same condition as when she made the offer, with the exception being any requested repairs made by the seller during the inspection period. Should the buyer discover a problem with the house at this time, she may have the right to cancel the offer.