From the Real Estate section of How You Can Avoid Legal Land Mines by Joseph S. Lyles (2003).

When can termites be killers? When they kill a real estate deal. Every house is sold with a contract that requires a clear termite letter. A termite letter is simply a written report from a pest control expert that says the expert found no live termites in the structure and sets forth any termite damage discovered. The seller usually has to repair the damage before the closing of the sale.

A client of mine, Ned, bought a house for the purpose of improving it and reselling it at a profit. He had a termite inspection done before he purchased it. When he resold it, the buyer had another termite inspection done by a different inspector. Neither termite inspector found live termites, but both had found old termite damage. The buyers also had a home inspection done by a professional home inspector, who didn’t find any live termites either. However, when the new owners began renovations, they discovered live termites.

New, who had relied on the professionals, ended up getting sued for fraud and failure to disclose. Needless to say, he didn’t make a profit on that deal. One rule of them you can follow is that termites follow water. If a house has a water drainage problem, it will usually have termites.

The Lesson: When it comes to real estate, termites can be killers.