Search This Blog

Tuesday, March 19, 2013

What is "As Is?"

So, the situation is that you want to buy a property and the seller says it's "as is."  What exactly does that mean?  Are you stuck with it if you find out something is wrong after the seller accepts your offer?  Will the seller negotiate any repairs?  Will the seller negotiate the price after the home inspection?  Does "as is" mean the property is in bad condition?  Does this mean there are problems that the seller doesn't want to disclose?

"As is" is very common these days, especially with sellers who have no equity and with the huge influx of bank-owned properties and short-sale properties.  Normally, you will see "as is" associated with bank-owned properties, short-sales, auction properties, sheriff sales, and estate sales.  If it's a "normal" sale the home will not usually be sold "as is."

Basically "as is" means this: the seller will not fix anything.

Does that mean you cannot have a home inspection?  No, it does not.  Keep in mind that the purchase contract always controls every transaction.  And while "as is" may be the way the property is sold, most sellers will still allow you to have a home inspection.  However, regardless of what your inspection determines, the seller will make no repairs.  Again, this is common with bank-owned properties, where the seller (the bank) doesn't want to mess with it.  That being said, most contracts include a clause that says that the buyer can get out of a sale if they find things wrong that they are not comfortable with, even if the property is listed "as is."

So, we know the seller wont make repairs, but will they lower the price?  Sometimes, it just depends.  This is an option, and banks can be open to dropping the price based on things that come up during the home inspection.  Sometimes they will negotiate, and sometimes they will not.  It really just depends.  But many times it worth trying.

Are "as is" properties always in bad shape?  No.  They can be, but just because a property is listed "as is" doesn't mean it's a total rehab.  Again, it just depends.  On things like an estate sale the family involved probably doesn't know anything about the property and just wants to get rid of it.  "Not knowing" doesn't mean it's in serious disrepair, it just means they don't know, and they don't want to deal with a laundry list of repairs.  Either you want it, or you don't.

On short-sales where the property is "as is" the seller has no money, and is upside down on their mortgage. The bank will not let the seller make repairs and the bank, who is directly involved in the short-sale, will also not make any repairs because the loan is already upside down and the bank is already in the hole for thousands of dollars.  They don't want to take another hit for repairs, they're already losing money.

"As is" doesn't necessarily mean the seller is hiding something.  Again, banks and estates rarely have any direct knowledge of the property.  Basically, they don't know about the condition and they don't care.  In some cases, the seller has to provide a property disclosure, in which the seller discloses what they know/don't know about the property.  These disclosures vary from state to state, and in general, banks and the like are not required to provide a property disclosure.  See my previous posting on seller's disclosure.

One last thing: if the property is "as is" because it IS in bad condition that makes buying it with a mortgage particularly challenging.  Many "as is" properties will only sell with cash or with a special financing program that takes into account the condition.  But that's a blog post for another day. 

I hope you are now an expert in "as is" properties.  Happy hunting!