Real estate disputes over hidden faults increasingly common and aided by AI
Homebuyers are increasingly filing claims against sellers after closing a deal, a process that has become easier as buyers turn to artificial intelligence rather than lawyers for help.
Real estate experts say claims over hidden defects have become more common. Karlis Kolk, a lawyer and board member at real estate agency Uus Maa, told ERR that people have become more aware of their rights, but that the trend is also linked to the use of artificial intelligence.
"People don't have to turn to a lawyer right away. AI is also being used to draft claims," Kolk explained.
He said some of the most common problems involve neighbors, such as poor sound insulation between walls and excessive noise. Various construction defects, subsidence and inadequate waterproofing also occur.
"Dry rot is another issue and is a common problem in older wooden buildings," Kolk added. "Mold as well, but that is more complicated when it comes to hidden defects because you can't prove exactly when it developed or that it was already there before."
Marko Sults, head of Ehituskaitse Büroo, told ERR's "Vikerhommik" radio show that mold makes people anxious, but even in apartments in newly built developments, ventilation systems or electric underfloor heating are sometimes switched off to save electricity.
If the warranty period, which is typically two years, is then nearing its end and mold has already developed at the joints between walls and floors during that time, the cause is not improper construction methods or mistakes by the developer. Instead, it is purely a problem caused by how the property has been used, something Sults said is very common in Estonia.
"Even though the owner of an apartment or a new house hires us to provide a service, unfortunately, in these cases we have to tell them that this is not the responsibility of the developer or builder," Sults said.
Tidy apartments in unrenovated buildings especially prone to nasty surprises
Sults said the most complicated type of property is a renovated apartment in an unrenovated apartment building. In such cases, the technical solutions may be inappropriate — for example, ventilation may be connected to the wrong shaft or piping may have been installed incorrectly.
The second most common category involves residential buildings that have been renovated in stages over several decades without any documentation being drawn up. In such a building, it is impossible to determine what technical solutions have been used without opening up the structures.
According to Sults, the most expensive problems discovered after a property purchase are related to bathrooms and other wet rooms. A bathroom, shower room or sauna may look aesthetically pleasing during a visual inspection, but the structures cannot be opened up before the transaction to see what is inside.
"In wet rooms, the most common problems we have seen in recent years are inadequate waterproofing and heating and ventilation systems that are not properly balanced," Sults said, adding that mold or moisture damage can develop within a short period of time as a result.
Karlis Kolk noted that when mold has developed due to a buyer's negligence, he has told clients there is no point in settling such a claim because it has no merit.
"Then it is up to the buyer to decide whether to go to court," the lawyer said.
Good idea to mention noisy neighbors in the contract
According to Kolk, sellers are also liable for defects they are unaware of. However, a purchase agreement can include a specific provision stating that the seller is not liable for defects they did not know about, although buyers may not agree to such a provision.
Disputes often arise because sellers may not consider something a defect even though the buyer does. For example, noise that one person finds excessive may not bother someone else at all. Notaries, however, recommend documenting everything that is known in the contract.
"All known defects must be disclosed. If you're in doubt, it's always safer to disclose them because the seller is not liable for anything that has been disclosed. As an extreme example, a contract might state that a property is uninhabitable even though it is actually perfectly habitable, just to avoid claims," Kolk said.
The lawyer added that if he were selling a property himself, he would disclose even the smallest inconveniences, from relations among members of the apartment association to noise from trains, to avoid a later dispute over whether the buyer could really have failed to notice a nearby railroad.
"The more that is documented in the contract, the safer it is for the seller," Kolk said.
Buyers can also commission a pre-purchase inspection to document the condition of the building.
Claims may exceed the purchase price
Claims filed by buyers against sellers over hidden defects can reach or even exceed the property's purchase price. Kolk said such claims can arise, for example, when dry rot is discovered in a wooden house and the building has to be demolished and replaced.
"The court also considers the principle of reasonableness. If a claim is that large, the court can use its discretion to reduce it to a certain amount and grant it in part," Kolk said, adding that the law does not set a limit on the size of such claims.
According to both experts, it is relatively rare for homebuyers to deliberately look for hidden defects in an attempt to recover part of the purchase price.
Sults said people generally do not act in bad faith. Instead, defects in a new home are more likely to go unnoticed at first because buying a home is an emotional process.
"Buying a home is a happy occasion. Imagine I've picked out an apartment or house for myself. I like the location, aesthetically everything is great and beautiful and I'm already planning where to put the furniture, choosing the color of the curtains and measuring where my wardrobe will go. Maybe the property's technical condition simply gets overlooked," he said.
The Uus Maa lawyer recalled one case in which a certified civil engineer inspected an apartment, made notes about subsidence and discussed the need for further assessments. He then bought the apartment, had the assessments carried out and filed a claim against the seller. While that might suggest bad faith, Kolk said it is generally very difficult to make such a determination.
"When a claim is justified, I've always tried to find an out-of-court solution for my clients. Either an agreement is reached for the seller to fix certain defects or the seller pays financial compensation to the buyer who then decides how to remedy the defects," Kolk said.
He said he generally does not recommend going to court because it costs both sides time and money and a dispute can drag on for years, meaning legal costs may ultimately exceed the value of the matter in dispute.
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Editor: Marcus Turovski
