Absolutely, although it has to be a material problem. If the seller didn’t tell you there’s a hole in the backyard that you could fill with one wheelbarrow full of dirt, you can’t back out of the contract. It has to be something that you wouldn’t be able to discover in the ordinary course of an inspection.
For example, in a recent case, a party bought a home and the seller knew that there were problems with the roof. In fact, the county had notified the seller that there had been problems with the roof, and the seller just declined to include that on the disclosure documents.
Most likely the seller, as well as the broker, since he knew about too, will be liable. One email between the broker and the seller that was obtained conveyed the message, “Ignorance is bliss. We don’t need to say anything.”
It does happen and it happens frequently. But yes, you could back out of a contract. In fact, if you already had a contract and you closed on the house, you could still go after the seller and potentially the broker, if necessary.
Standard contract to buy real estate in Colorado, which are approved and is to be used by all the real estate brokers, do have a prevailing party provision where whoever prevails in the lawsuit is responsible for the other party’s damages.
But if you’re suing on a breach of contract, and this breach of contract only has a three‑year statute of limitations, it works a little differently, because construction defects change. You can’t go back and get out of a contract on a construction defect that you discover afterwards unless it’s reasonable to assume that that prior owner knew of that defect.
If you bought a house from a prior owner two‑and‑a‑half years ago and you discover that one section of the roof didn’t have the tar-paper replaced when the roof was repaired, and there was no way that the previous owner knew that, (perhaps because he bought it from someone else), then you’re not going to be able to go after that owner, (although you could potentially go after that contractor).