Luckily, they accepted a 1.5k check for the defect and said they'd fix it themselves.

@Dave Friedman  One thing that mitigates their liability is the tree was not a hidden defect. 

Regarding earnest money, you should ONLY put a deposit down if you are certain you want to buy the property and that deposit should be entirely non-refundable with the exception of title defect(liens/encumbrances/etc).

Assuming the house has no major defects or seriously worn issues, this is where we see the best return on our homes:1.

Also pointing out all the defects of the house to the bank helps as well.

This came about during the last RE boom where people who didn't know what they were doing, rehabbed homes and then the new buyer found out that the electrics and/or plumbing hidden in walls was defective but the LLC that sold it to them had been dissolved and so they had no recourse.I do like the idea of having extensions written into the loan to start with, so if the rehab takes longer or just doesn't sell quickly, it's already covered.I do have a couple advantages, firstly my friend owns a third of some of my rentals and so the loan will be written with a clause that I can use part of his share of the rents to cover this loan if the loan goes over the fixed period of the term.  

What, if any, experience do you have in finding any attempts made by the seller to conceal defects with the property? 

@Elizabeth Colegrove @Matt Good Chinese drywall or toxic dry wall is defective drywall used mostly in the early 2000 to 2007 that emits toxic sulfa entities.

There’s no need to put the house down or make them feel bad by pointing out all the defects.

Having the borrower prepare the note will almost always have some defect that will render the note unsaleable on the secondary market.