Robert Bruss, Inman News
March 22, 2007
Whether you are a home buyer or seller during the peak home sales season of April through June, you will probably encounter the term "as-is" sale. Just as used-car dealers sell thousands of automobiles "as is" without any warranty or representations, houses and condominiums are sold using the same term.
But an "as is" home sale is different. Thanks to state laws and court decisions, a real estate "as is" sale is far more complicated than the sale of an "as is" used car.
An automobile "as is" sale means "buyer beware." However, the best way to describe a real estate "as is" sale means "trust, but verify," as the late President Reagan said many times when referring to political situations.
Simply stated, an "as is" home sale means the seller must disclose to the buyer all known defects, but the seller will not pay for any repairs.
Does an "as is" home sale mean the seller doesn't have to disclose known defects and can conceal defects, as the seller of a used car might do? The answer is "definitely not."
Even "as is" home sellers must reveal to the buyer all material defects of which they are aware. But "as is" sellers do not have to make any warranties or representations and need not pay for any repairs to correct material defects.
The reason many older homes are sold "as is" is because the seller doesn't want to pay for any repairs.
For example, if I were selling my house "as is" today, I would have to disclose the wood garage door is slightly warped and doesn't close tightly. As an astute buyer, you would surely observe this 1-inch gap at one corner. But the automatic door opener functions well and does its job. I would leave it up to the buyer to decide if he or she wants to install an expensive new garage door, but I'm not going to waste money repairing or replacing the still-good existing door.
There are at least four major reasons some home sellers want to sell "as is": 1) the seller doesn't have the money to correct the disclosed defects and prefers to let the buyer fix the problems; 2) the buyer is likely to renovate an older "fix up" house so the seller would be wasting money on minor repairs; 3) the seller has owned the house many years and doesn't insist on earning top dollar; and 4) the seller doesn't want the hassle and inconvenience of fixing the problem.
Possible additional reasons for "as is" home sales include the seller 1) recently acquired the residence by inheritance or purchase and is reselling for a quick profit; 2) hasn't lived in the property and is not aware of its problems; and 3) doesn't want any responsibility for fixing problems that might occur after the sale closes.
When buying an "as is" house, buyers should not be lulled into a sense of security if the seller offers a one-year home warranty policy as a sales incentive. Such policies have many exclusions and offer little real protection against serious home defects.
However, home buyers can benefit from "as is" sales if they know how to protect themselves. Rather than reject such a home sale, savvy buyers welcome such profit opportunities.
The best way for a buyer to protect against a seller who "forgot" to disclose a serious but known home defect is for the buyer to include a professional inspection contingency clause in the purchase offer.
Buyers of every house and condominium should make the purchase offer contingent on the buyer's approval of their professional home inspector's report. That means, after the home seller accepts the buyer's purchase offer, the buyer hires an inspector.
Home buyers should be wary of inspectors recommended by the real estate agent. Such an inspector might be known as "easy" and not a "deal killer." Ask such inspectors recommended by an agent about their experience, background and professional memberships.
An excellent credential is an experienced independent inspector who belongs to one of the professional home inspections organizations such as the American Society of Home Inspectors (ASHI). Local ASHI members can be found athttp://www.ashi.com or 1-800-743-ASHI.
Even when buying an "as is" home where the seller discloses all known defects, a professional inspector often will discover unexpected serious defects. When that happens, the buyer has several alternatives.
One is to cancel the purchase and obtain an immediate full refund of the buyer's good faith deposit. But a better alternative is to use the professional home inspector's written report to re-open negotiations to obtain a repair credit for the estimated cost of correcting the unexpected problems.
Especially in a slow "buyer's market," many home sellers are so glad to receive any purchase offer they will gladly agree to credit the buyer with the estimated repair cost.
A repair credit is usually better than a price reduction because the mortgage amount is usually not affected. Another advantage of a repair credit is the buyer can shop around after the sale closes and often reduce the actual repair cost.