What Should You Consider Before Buying As-Is?

The term “as-is” in a real estate listing indicates that the buyer must be willing to accept the home exactly as it currently is, foregoing any opportunity to request that the seller make repairs or offer credits for problems with the property. Let’s take a look at how you may encounter the term “as-is” in a real estate transaction.

The Entire Property Being Sold “As-Is”

When the entire property is being listed and sold “as-is”, the seller will not make any repairs, nor offer any credits for potential defects of the home or grounds.

Some examples of major defects that the seller would not have to correct might include:

  • Structural problems
  • Leaking or faulty roof
  • Chinese drywall
  • Active termite infestation or damage
  • Non-functioning systems (HVAC, septic system, etc.)
  • Mold or mildew problems
  • Presence of asbestos or other harmful materials

So you can see why agreeing to purchase a property “as-is” is a serious decision for any buyer. In some instances, you may request an opportunity to inspect the property for informational purposes only, even though you have already contractually obligated yourself to purchase the property.

In practice, some buyers and sellers may agree to an “as-is” sale, but still allow for a home inspection and the opportunity for the buyer to unilaterally terminate the contract for a specified period of time following inspections. While technically not adhering to the legal definition of “as-is”, this is permissible as long as the parties are in agreement.

Specific Components of a Property Being Sold “As-Is”

Or, you may encounter sellers who identify specific aspects of a home being sold “as-is”. Common examples include:

  • Fireplaces, chimneys and flues
  • Detached structures (sheds, garages, etc.)
  • Household appliances (washer, dryer, refrigerator, etc.)
  • Swimming pools, spas, hot tubs

Oftentimes, “as-is” in this situation refers to aspects of the property that may or may not be functioning, but that the seller will not repair or change as part of the contract of sale. Because the “as-is” specifications refer to a very specific part of the property, this situation is often more palatable to non-investor homebuyers.

Two Specifications: “As-Is, Where-Is”

With the inclusion of “where-is,” the seller is indicating that the property must be accepted in its current location. In real estate terms, “where-is” effectively excuses any potential locational faults. Some examples include:

  • The property is in a flood zone
  • The property is not zoned for its current use
  • The property is or may be scheduled to be taken by a government by eminent domain, right-of-way, easement, etc.
  • The presence, or lack thereof, of restrictive deed covenants limiting what an owner may or may not do upon the property
  • Inclusion, or non-inclusion, within a designated historic zone
  • The property lies within an airport flyover zone
  • The presence of some geological defect (inability to perc a septic system, elevated radon levels, shrink-swell soil, etc.)
  • Actual or potential defects of Title

Before buying, it is important you learn why the home is listed “where-is”, so you can make a fully-informed decision.

Best Practices for Sellers

For sellers, it’s important to specifically flag for buyers that the property is being sold “as-is”. The greater the emphasis (within quotations, capitalized, bolded, etc.) the stronger your statement becomes. While it may seem overkill, you save everyone’s time by making sure that the only people who look at your property are those comfortable with your terms.

But more importantly, any and all “as-is” language must be included, in writing, on the actual contract. Whatever terms fall within the writing of the contract will control and govern the transaction moving forward. Failure to include the “as-is” terminology will negate any desire or intention of completing an “as-is” transaction.

Best Practices for Buyers

For buyers, it’s important to recognize the extreme significance of “as-is” terms and transactions. You are giving up the very significant opportunity for inspections found in most common real estate transactions. This means that due diligence prior to entering into an “as-is” contract is an absolute must. Some examples of due diligence to consider:

  • Consulting with an attorney
  • Having a title search performed
  • Examining the deed and land records for potential red flags
  • Inspecting the property prior to offering a contract
  • Including a provision in the contract that allows for inspections and cancellation of the contract as a result of any inspection findings
  • Commissioning a Wood Destroying Insect (termite) inspection in advance
  • Having a licensed contractor examine the major structural components of the dwelling

At the end of the day, you will have to decide if the potential benefits of an “as-is” transaction outweigh the potential pitfalls and expenses.

Most residential real estate listings are not “as-is”. Those listings that are “as-is” are often targeted towards professional investors and rehabbers, who have experience with such transactions. The reward of such a transaction can be high; so can the risk. Professional investors often spread the risk by buying several “as-is” properties at once, with the assumption that one or more may not be successful but that the majority will, therefore covering their losses.

A common buyer usually doesn’t have this luxury. So, for a buyer not especially experienced in real estate, home-contracting or home construction, it often makes sense to skip an “as-is” purchase in favor of a less-risky purchase with more conventional terms.

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