The Concept of “As Is”
One of the most misunderstood concepts in Real Estate is the concept of “as is”. In it’s truest sense, “as is’ means the buyer is accepting the property in its present condition with no obligation for repairs from the seller. Not surprisingly, most sellers would love to sell their home “as is”. In fact, I have seen many sellers light up with the mere mention of the word, like my 12 year old niece lights up at the mere mention of Justin Beiber. The reality is that very few homes are ever sold “as is”. In practice, most of the time when a seller says “I want to sell it as-is”, what they are saying is they don’t want to be responsible for a long list of minor repairs. They are essentially saying I don’t want the hassle of doing a lot of work. This is certainly their prerogative, and as long as the buyer is willing it can be done.
The standard CAR real estate contract used here in the Bay Area is essentially an “as is” contract. In standard practice, there is usually a stipulation that the seller will take care of any Section 1 items that are discovered as part of the Pest Inspection. These items would include any dry rot or infestation from termites or other pests. Other than that, there are typically no other repairs that are mandated, with the exception of water heater bracing and smoke detector installation. Recently, Carbon Monoxide detectors are becoming more and more the obligation of the seller.
But it is certainly possible to write a contract that is strictly “as is” with no obligation on the part of the seller. There are generally two situations where this is done.
The first situation is when the seller gets ALL INSPECTIONS AND DISCLOSURES completed prior to putting the home on the market. In this situation, the seller can provide copies of the inspection reports and disclosures to prospective purchasers before they make an offer. This allows the purchaser to make an informed decision about the condition of the property, and allow for any repairs that need to be done when arriving at an offer price. This is the best way to truly achieve an “as is” sale, as there is full disclosure of all known issues and needed repairs, and the buyer can move forward with confidence. This is a fairly rare event.
The second situation, which is much more common, is where the seller states the property is being sold “as is” but there are not inspection reports on the property. In this case, it is “as is” subject to the buyer’s inspection and investigation of the property. The buyer will have the opportunity to inspect the property thoroughly to ascertain the condition. It is then up to the buyer whether they want to proceed with the purchase and remove their inspection contingency, or elect not to go forward with the transaction. The seller in this situation can’t force the buyer to buy the property. Rather, the buyer typically has some leverage. It is not uncommon in this situation for the buyer to request the seller correct any issues with the property as a condition of moving forward, which is how standard real estate purchases are handled. It is up to the seller to agree. Of course, if the seller does not agree, and the house goes back on the market, any future buyers will likely have concerns about any issues that were raised, so it might be in the seller’s best interest to agree to handle some of these repairs. Even on bank owned homes or short sales, which are typically “as is”, the lender will sometimes agree to remedy defects with the property, knowing that other buyers will likely have the same issue.
One additional caveat; Often the buyer’s lender require all termite repairs be completed prior to close of escrow as a condition of the loan. This complicates the transaction, as the buyer does not want to do repairs to a property they don’t own. And increasingly lenders are requiring other repairs to be done as well. So if the buyer is getting a loan it can create issues at closing.
So can a seller insist on an “as is” sale? Absolutely…. as long as the buyer is willing to go along. And as we know buyers are generally so easy in today’s real estate environment! One thing is for certain; the property ultimately will have to be priced to reflect the condition.