Why home buyers and sellers must understand ‘as-is’ sales

If you are buying or selling an “as-is” residenceduring this peak home selling season, it is very important to understand thepros and cons of such a home sale. Thousands of houses and condos are sold”as-is” every day.

But an “as-is” sale usually isn’t the best way fora home seller to get top dollar. The reason is an “as-is” sale givesa warning signal to prospective buyers there might be something wrong with theproperty.

Purchase Bob Bruss reports online.

However, an “as-is” home purchase might be anincredible bargain for the buyer who understands the possible benefits anddetriments.

WHAT IS AN “AS-IS” HOME SALE? Most of us arefamiliar with “as-is” used car sales. It means the seller makes nowarranties or representations as to the car’s condition.

Although similar, “as-is” home sales are a bitdifferent, thanks to state laws and court decisions.

The old days of “caveat emptor” (let the buyerbeware) are long-gone in most residential sales. Today’s rule seems to havebecome “Home seller, beware of the buyer’s lawyer.”

When a home is sold “as-is,” that means the sellermakes no warranties or representations, and will not pay for any repairs ofeven obvious defects. However, in most states “as-is” home sellersare now required to disclose to their buyers all known defects in theresidence. The buyer can then consider these disclosed defects when making apurchase offer.

For home buyers, an “as-is” sale is a “redflag” warning to be especially careful. At a minimum, buyers of”as-is” houses and condos should make their purchase offerscontingent on a satisfactory professional inspection by a reputable inspector.

Personally, I recommend members of the American Society ofHome Inspectors (ASHI) because of their tough membership requirements. LocalASHI members can be located at www.ashi.comor 1-800-743-ASHI.

WHY SOME HOME SELLERS SELL “AS-IS.” As experiencedreal estate agents know, many homes are listed for sale “as-is” for avariety of reasons.

The three major reasons for selling “as-is” are 1)the seller doesn’t have the funds to correct the disclosed defects and prefersto discount the sales price instead, 2) an older fixer-upper house is likely tobe renovated to the buyer’s standards, and 3) the seller doesn’t want theinconvenience and hassle of making repairs.

Additional reasons for “as-is” home sales includethe seller 1) didn’t live in the house and is not familiar with its possibledefects, 2) recently acquired the property by inheritance or purchase and justwants to make a quick profit, or 3) has owned the home many years and doesn’tcare about getting top dollar for the property.

THE UNSPOKEN REASON FOR SELLING “AS-IS.” But thereis another unspoken reason some home sellers sell “as-is.” They thinkthey can get away with selling a home, which has a hidden defect that the buyeror a professional inspector won’t discover.

For example, a few months ago I received a letter from anice couple who bought their first home with virtually every dollar they had.Shortly after moving in, the sewer backed up into the basement. Uponinvestigation, the buyers learned the sewer pipe to the street was badly brokenand needed replacement. They spent about $4,750 for a new sewer line andbasement cleanup.

After talking with their new neighbors, they learned theRoto-Rooter man was a frequent visitor to the house so the seller obviouslyknew of the problem. Unfortunately, for the buyers, the seller had moved out ofthe area and couldn’t be easily sued for damages.

Unless there was evidence in the basement of previous sewerbackups, even the world’s greatest listing real estate agent and professionalhome inspector probably never would have discovered this serious defect.

DON’T REJECT AN “AS-IS” HOME. Personally, I’vebought many “as-is” residences for investment, which were incrediblebargains. However, I always insisted on making my “as-is” purchaseoffers contingent upon approval of a professional inspector’s report.

To illustrate, the best “as-is” bargain I everpurchased was a house that had been rejected by dozens of other prospectivebuyers. As I walked into the living room and saw the ugly crack in thefireplace brick, my first reaction was “yuck.”

However, I made a very low purchase offer, contingent on theapproval of a professional inspection, thinking my “low-ball” offerwould be rejected. To my surprise, my offer was accepted.

Of course, I accompanied my professional inspector and askedhim many questions about the fireplace, which he thoroughly inspected, even upin the attic. He reported it was just a superficial but very ugly crack, whichcould be repaired for about $150 with special fireplace mortar.

HOW TO HANDLE UNDISCLOSED HOME DEFECTS. Buyers of”as-is” homes should always 1) insist their sellers provide a writtendisclosure statement of all known defects, and 2) make their purchase offercontingent on the buyer’s approval of a professional inspector’s report. Thebuyer should always accompany the inspector to discuss any undisclosed defects,which are discovered.

If the inspection report reveals significant unexpecteddefects which, in fairness to the home seller, might have been hidden (such asattic roof leaks), the buyer then has two choices: 1) cancel the purchase andobtain an immediate refund of the good faith deposit, or 2) re-opennegotiations to obtain a repair credit for the estimated cost of correcting theunexpected defect.

Many sellers are so anxious to sell their home, especiallyin a slow “buyer’s market,” they will gladly agree to buyer repaircredits for the undisclosed defects, even if the seller was unaware of thoseproblems.

CONCLUSION. For various reasons, many houses and condos areoffered for sale “as-is.” That means the seller must disclose allknown defects but will not pay for any repairs.

Home buyers should not automatically reject”as-is” homes. However, they should 1) insist the sellers provide awritten disclosure statement of known defects, and 2) make their purchase offercontingent upon a satisfactory report by a professional home inspector. Moredetails on “as-is” home sales are available from a local real estate attorney.

(For more information on Bob Bruss publications, visit his
Real Estate Center
).

Copyright 2006 Inman News

Distributed by Inman News

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