Protect yourself in 'as is' purchase

Home Sale Hindsight

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Dec. 3, 2010

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Home Sale Hindsight

Tara-Nicholle Nelson
Inman News

Q: From what I have read, "Sold As Is" can cover anything from minor defects/repairs that the seller is unable/unwilling to do or can be major problems. What can a prospective buyer do to protect themselves?

A: Fabulous question. So, here's the deal: An "as-is" sale really does only this: It informs the buyer that the seller has no intention of doing any repairs to the property, and puts the buyer on notice that he/she should have the property inspected exhaustively, as the buyer will be taking possession of the property in its current state.

For this reason, many sellers and agents insist on an as-is sale, whether the property is in pristine condition or is a major fixer. (Of course, at this juncture I must interject that no property -- brand-new or resale -- is perfect and without any flaws.)

Now, in many jurisdictions, the laws and/or standard forms used in the state convert "as-is" into what we call "as-is/as-disclosed." This is the case where the contracts and law of the state (a) require that a seller disclose any "material" defect of which he knows or should know, and (b) the contracts popularly used in the state or region incorporate the sellers' property disclosures into the contract.

In an "as-is/as-disclosed" jurisdiction, the seller has the duty to inform the buyer of any problems or issues with the property that would make a difference in the decision-making of a reasonable buyer; that can help the buyer decide (a) whether she's interested in the property, (b) for what price and on what terms -- considering the repairs they may have to do later, and (c) which inspections to obtain to fully understand the property's condition.

On the other hand, there are geographical regions -- primarily Southern states, like Alabama -- in which the "caveat emptor" (buyer beware) rule reigns in an as-is sale. The state's contracts don't incorporate disclosures, as a rule, and the sellers have no duty to buyers in these states to disclose anything on an as-is sale.

In fact, a recent Alabama Supreme Court ruling held that even where the seller had intentionally defrauded the buyer about the condition of the property on a pre-contract disclosure form, caveat emptor still applied and the seller had no duty whatsoever to disclose the property's condition to the buyer.

So, the first step a buyer can take in protecting themselves in an as-is sale is to fully read and understand the contract and the seller's disclosures, including asking your broker, agent or attorney to explain what disclosure duties the seller owes you, in your state. Disclosures should be carefully reviewed, and any defects or work that the seller reports having done to the property should be investigated.

Ask questions and request copies of work permits or warranties and generally get an understanding for what work this seller has had done to the home. If the seller was not the first owner, it can also be revealing to ask if he still has any of the disclosures from the preceding owner.

Most important, though, is to have the property thoroughly and professionally inspected before the end of your contingency or objection period. At the very least, get a home inspection and any "special inspections" the general home inspector recommends.

Consult with your agent and use your judgment. When I was actively selling real estate, I would generally advise my clients to have an overall property inspection, a pest inspection and a roof inspection. Of course, if the seller had just obtained a pest inspection from a well-respected inspector or the roof was new with 29 years of warranty remaining, we might forgo those.

Fireplace and foundation inspections were also fairly common, given that I sold homes in an earthquake-prone area where chimneys often separated from houses and foundations required ongoing maintenance.

In an as-is deal, inspection reports serve less as your launch-pad for a repair request than as your post-closing home improvement store shopping list. They are a way to begin understanding what needs to be done so you can get estimates and bids on the work before finalizing the purchase of the home. Think of inspection reports as a tool for making sure you are completely comfortable taking the home in that condition. If you are not, the reports can serve as an alert that you should back out of the deal or renegotiate with the seller, given the defects revealed by the inspections.

The second step in protecting yourself in an as-is transaction is obtaining inspections from a qualified inspector. Ask your agent for referrals and hire a certified and/or licensed home inspector -- not your cousin who happens to be a really handy accountant.

Read and follow up on the inspectors' written or digital reports by getting any further information indicated from the seller, obtaining "specialized" inspections as recommended, and getting bids for repairs needed before the expiration of your contingency or objection period.

Finally, if you are in a state where the "caveat emptor" rule applies, I would encourage you to work with your broker or a local real estate attorney to ensure that the sellers' duty to disclose defects and the actual disclosures are incorporated into your contract. That way, you at least end up with the last-resort protection against sellers providing you with fraudulent information about your home-to-be: the threat of legal liability.

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