If you know about a defect, you have to disclose it, if the buyer thinks you covered something up, they're going to sue (or threaten to sue) to shake you down for money anyway..

Your insurance company might not cover any defects as a result of the unpermitted addition.I would suggest you give the City a call and talk with them about your situation. 

Only 1 year year re: defective noticing.

This does not mean excuse major big dollar problems and defects as those should always be weighed in with the most utmost importance in the buying decision.

If you purchase the property you purchase the defect.

Electrical Panels -  The inspection uncovered that the electric panels were made by Federal Pacific Electric and have a design defect where the breaker does not timely trip and the thus increase the risk of electrical fire.

If they choose not to exercise that right then they won't win damages later on for what they could have found but chose not to investigate.Now had they completed an inspection but the defect was not discoverable in such an inspection then they might win the argument.

In other words, the seller is required to provide good title, it is the seller's responsibility to cure any defects, not the buyer.

@Lou R.There are many possible reasons:NOI numbers in the pro forma are likely rosy ... a thorough analysis could tell a quite different story;There may be other liens or defects in title on the property;The building is facing functional obsolescence or is carrying too much deferred maintenance;There is a forthcoming change in the local economy (major employer downsizing/leaving) or neighbourhood (redevelopment, highway or manufacturing being built close-by);The list goes on, but it always comes down to a lack of value in the proposition: either there is a significant problem with the business or the asset which makes the acquisition costs unreasonable.Now, sometimes this can be a good thing - if you are certain you have identified the issue(s) and know you can effective remedy them at a cost which the business could afford, you may have yourself a deal.  

IE mainly all SFR or small commercial buildings.GOOD insurance will be what U need.Although the slumlord  stuff were you have deaths because of maintenance defects  those are real and can turn criminal.