'As-is': what does it really mean in a real estate transaction?
Published Date 12/20/2019
When Billy Joel wrote the song Just the Way You Are, it wasn't about buying a house. It would be too unromantic to say, "I'll take you as is." But that's what many sellers are stipulating when they list their homes.
Those few words can have a significant impact on your transaction if you are the buyer. In a typical sale, after the buyers do all their inspections, they're allowed to negotiate the recommended repairs with the sellers. It's a "push-me-pull-you" kind of thing. The sellers will agree to have some portion of the work completed by a qualified professional or, alternatively, they will agree to give the buyers a credit towards the cost of the work.
That all changes when you buy a home in "as-is" condition. In real estate terms, a home that's being sold as-is essentially means that you're willing to accept responsibility for any work that needs to be done to the home.
This does not mean you have to skip inspections, however. You still have the option to do inspections for your own benefit, but the information you glean will be informational rather for negotiating purposes. That being said, it's wise to do the inspections to understand what you're in for — a new roof? HVAC system needs to be replaced? If you find that the house needs more work than you can handle, you'll have the option to back out of the deal.
By now you may wonder why to consider an as-is purchase at all. The one big benefit is that you can usually get it for a better price. Forbes' Tara Mastroeni writes, "Since the sellers are unwilling to negotiate on repairs, they'll often price the home lower than would be expected in order to make their property seem more attractive to potential buyers." She goes on to say that the other benefit is that you'll have more control over any repairs done to the home once you're the homeowner. "In a typical sale, the sellers get to choose who does the repairs that they've agreed to make. In this situation, you'd be able to hire professionals that you trust."
As for reasons NOT to buy an as-is condition home? Risk. Even if you do your inspections, that home that took your breath away at first sight might end up costing more than expected and, in this case, you'd be the one responsible for footing the bill.
If you are on the selling end of the equation, you'll need to educate yourself before listing a home as-is. Many homeowners assume that selling as-is relieves them from all the general obligations that come with the sale of a home, including unloading the property for whatever price they can get while avoiding the need to talk about or disclose any issues with the home. This is where they'd be wrong. Disclosure still rules, but the terms of disclosure rules can vary from state to state.
Listing agents can often become the fall-guy in as-is transactions, as they are held to a higher standard when it comes to disclosing a home's defects. This is due to the Consumer Protection Act (Chapter 93A). MaxRealEstate's Bill Gasset says this means, "Realtors have an obligation to disclose any fact that could influence the buyer not to enter into a real estate transaction. For example, if a real estate agent knows that the seller's basement floods every spring, this is something a Realtor has to disclose." As for what might stand up in court if a buyer backs down, it can become a he-said-she-said conundrum.
Gasset lists examples of issues a real estate agent must disclose to a prospective home buyer, such as evidence of a structural defect like a major crack in the foundation, the appearance of mold in the home, termite damage, roof leaks, high radon levels, known plumbing or electrical issues, obnoxious noise levels and especially any legal issues such as a cloud on the title.
As for the issues a home has that are not evident or lie beneath walls and floorboards, real estate agents do have a duty disclose if they discover some problem on their own or the owner lets them know. No secrets allowed. Gasset says most real estate companies ask sellers they are representing to fill out a document called a "Sellers Statement of Property Condition" — a report that outlines what an owner knows and doesn't know about their home.
So after all this information about as-is listings, why would sellers opt NOT to do this? Simple. There is a negative connotation with buying a home as-is. "Buyers will low-ball you," says Gasset. "Under the assumption that your home has serious defects, the buyer will bargain with you like you are desperate. You can expect offers that are probably less than what you want, or what your home is worth."
You'll also have to work harder at justifying your sales price. "Because buyers will be coming into the transaction with so much negative baggage, it will be difficult to break through the assumptions to show that there are plenty of reasons why your home is desirable."
Unless selling homes in your area is as easy as fogging up a mirror, you may also drive away a lot of potential buyers with an as-is stipulation. "Even if you are in a position where you want to put minimum effort or money into the home to make a sale, you could still benefit from avoiding the as-is designation in the listing," says Gasset. "Let buyers come and make offers, see how you feel, and go ahead and turn down requests to make repairs if you feel it is the right choice."
Sources: Forbes, MaxRealEstate, TBWS
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