Affiliate Broker Tennessee (TN PSI) National Practice Exam `

What should Marla do after discovering water damage during the home inspection that was not disclosed by the seller?

1. Negotiate repairs with the seller.

2. Proceed with closing as planned.

3. Terminate the agreement and ask for a refund of her earnest money.

4. Contact the seller for a price reduction.

The correct answer is: Terminate the agreement and ask for a refund of her earnest money.

When Marla discovers water damage during the home inspection that was not disclosed by the seller, terminating the agreement and asking for a refund of her earnest money is a prudent course of action. This option is appropriate because significant undisclosed issues like water damage can materially affect the property’s value and livability. In real estate transactions, sellers have a legal obligation to disclose known defects to potential buyers. If water damage exists and was not revealed, this could be seen as a breach of contract or a failure to disclose material facts. By choosing to terminate the agreement, Marla is effectively protecting herself from potential future expenses related to repairs or decreased property value. While negotiating repairs with the seller or contacting them for a price reduction are valid options in many situations, those strategies presuppose that Marla still wants to proceed with the purchase despite the newfound issues. However, given the extent of undisclosed damage, walking away could be the more responsible choice, especially if she is uncomfortable with taking on the risks associated with the repairs or potential harm to the property in the future. Proceeding with closing as planned would ignore the serious problem identified in the inspection, which could lead to significant consequences down the road.