House For Sale "As Is": What Does That Mean for Buyers?
Selling a home “as is” is a pretty sweet deal for sellers. In this scenario, sellers are not prepared to spend the time and money making repairs and/or putting a shine on those stainless-steel appliances. But what does an "as is" sale mean for buyers? When looking through property listings and seeing the term “as is,” some see it as a warning. Others, such as real estate investors, may see a house selling “as is” as an opportunity, one that might get prospective buyers to wonder what exactly “as is” means.
Why sell a home “as is”?
In California, the standard purchase agreement contains verbiage stating that, “Unless otherwise agreed in writing, the property is sold “AS IS.” Most often, when a real estate agent adds “house sold as is” to the listing comments, they are emphasizing that the homeowner is not willing to pay for or give credits for deferred maintenance or repairs. The term "as is" is rarely included with a property that's in great condition and move-in ready.
Sellers often hold firm to selling a home “as is” because the home is in disrepair and they lack the resources to make repairs, which if completed, would yield a higher sales price. Additionally, a home may have been foreclosed on and is now owned by a bank, or the owner may have died and left the house to heirs, who have limited knowledge of needed repairs and wish to liquidate the asset as quickly as possible. Whatever the reason, the current sellers are not willing to make needed repairs and/or put a fresh coat of paint on the walls. They simply want to sell the home and move on. For the buyer, they can expect their new home to come with a list of repairs to complete, some of which may be pricey.
When you see a home priced at what appears to be a real bargain and the word “fixer” appears in the comments, know that the house needs some work. Depending on the scope of work needed, the sellers may even entertain offers below the asking price.
If the home has serious problems and the terms are "cash offers only," this tells you their agent does not believe the home will qualify for a mortgage.
It is important to note that regardless of whether the home is listed “as is,” the buyer’s legal
rights don’t change. The seller must disclose all known problems to the buyer, and the buyer has the right to thoroughly inspect the condition of the property during the discovery period. Finally, the buyer can still attempt to negotiate the final sale terms based on his findings.
The Opportunity that Lies in “as is” Home Sales
So, how can "as is" be an opportunity, if the buyer is absorbing all those problems?
The downsides of an “as is” property include any number of things that could be wrong with the house that are not immediately apparent to the naked eye. Buyers might think they're getting a killer deal, but they could also be throwing their life savings into a black hole.
In short, it boils down to “What do I have to pay for the property plus the cost of repairs and upgrades, and is that total investment at or below recent comparable sales in the neighborhood?” If the analysis yields a resounding “yes,” then you may have found a great opportunity.
Furthermore, if the prospective buyers happen to be handy with a hammer or are looking for a property to flip, or maybe just want an extreme bargain, the promise of an “as is” sale could be music to their ears.
Should you buy a house that's selling “as is”?
Now that you have a better idea of what an “as is” home sale entails, you may be wondering whether to move ahead with the sale. Since these sales can be bargains, they are worth considering; however, buyers must take the precaution of conducting a home inspection. Inspections typically occur during the discovery period; the duration is negotiable and begins once the buyer’s offer is accepted.
A home inspection includes an examination of the house from basement to rafters and will assess any issues plaguing the home, problems that may cause the buyer to reconsider the purchase. Such problems can be current or in the buyer's future, such as a leaking roof or a sewer line that may need to be replaced within a few years. A basic home inspection typically costs between $400 and $600. However, specialized inspections for sewer, foundation, or chimney are sometimes prudent, which would be an additional cost. Note that the buyer, not the seller, is responsible for all inspection costs and thus, the inspector is working for the buyer and looking out for their interests.
While “as is” home sellers have already made it clear they will not pay for any repairs, an inspection remains critical so that buyers have a thorough understanding of the home’s condition before moving forward with the purchase. Within your purchase contract there is an agreed-upon discovery time period in which to complete the review of all disclosures and all inspections. Should you discover significant issues with a home that require more time and/or money to rectify than you are willing to spend, then you have the option of cancelling the contract and walking away from the deal with deposit in hand. Yes, you would be out-of-pocket for the cost of the home inspection(s), but this is preferable to purchasing a home that is nothing more than a money pit you are obligated to pay for!
Remember that, despite what the seller says in the listing, a real estate purchase is open to negotiation. If you partner with a good real estate agent, complete your due diligence, and maintain a mindset of fairness, odds are that you will be able to make a deal that works for you.