as is: in whatever condition something happens to be, esp. referring to something offered for sale in a flawed, damaged, or used condition.
We all know what as is means, but does “sold as-is” mean anything anymore? I ask this, because my clients have been asking it to me a lot lately, and frankly, I can see why they’re confused. Sellers, mostly banks and real estate investors, have been adding as is forms and as is clauses to their contracts for probably as long as the real estate contract has been in existence. Recently, however, the rules of “as-is” have been bent a lot. And once a rule has been bent, eventually it’s going to get broken. Let’s look at why home sellers typically ask to sell their properties as is, and how the definition of as is has been twisted over time.
Why would you sell a home as-is?
When a home seller, perhaps in a distress sale situation, feels that he, she, or it (in the case of a bank or company) cannot afford to make any repairs to the home because of the loss he, she, or it is already taking on the sale, the home seller may negotiate an as-is clause into the purchase agreement. This is sometimes done on a separate form or addendum, or as a counter offer to the buyer’s original offer. Here below is a sample of language from an As Is Addendum that was recently presented to a client of mine.
Seller and Buyer agree that the Premises is being sold in its existing condition (“AS IS”) and Seller makes no warranty to Buyer, either express or implied, as to the condition of the Premises…
Not all as is clauses will read exactly like this, but they will attempt to convey the same message: This seller is not interested in repairing anything once there is a contract in escrow.
When is “as-is” not as-is?
So you’re looking at the language from the As Is Addendum above, and you’re thinking, “That sounds pretty straightforward to me. Are home buyers asking sellers to make repairs to these homes anyway?” Absolutely, and sometimes the sellers give in. And therein lies the confusion.
In one common scenario, the real estate appraiser of the home you’re buying will point out certain defects he or she spotted while on the property, and notate them on the written appraisal report. These defects are most often related to the electrical or plumbing systems, and are frequently notated on appraisals for FHA financing. The appraiser may even go so far as to require that these defects be corrected prior to the Close of Escrow. At that point, the buyer will have no choice but to cancel the contract, or…ask the seller to make some repairs after all. Put up against a wall like this, I’ve found that most home sellers will make those repairs so as not to risk losing the contract altogether.
In another scenario, you may find these defects during your Inspection Period, thanks to a general home or termite inspection you ordered. Signing an As Is Addendum, by the way, does not preclude you from conducting inspections. And if you’re not interested in waiting for the appraisal to be completed, you may say to the seller that he, she, or it must agree to correct those problems found or else you will cancel the contract and withdraw your earnest deposit. This is a less-common tactic, but I have seen it work. In some situations, often depending on the sales price and the desperation to sell the home, home sellers will go back on their as-is language, and make repairs anyway.
So why bother adding “as-is” language to the contract?
“Why bother adding “as-is” language to the contract at all?” is exactly my point. Perhaps these as is clauses should read something more like this:
Seller and Buyer agree that Seller would really prefer to sell this home in its existing as-is condition. However, if Buyer makes a strong case as to why certain repairs are necessary, and Buyer nicely says “please,” Seller may consider to make such repairs, because Seller realizes that if Seller doesn’t, Buyer may cancel this contract and put Seller right back on the market where Seller doesn’t want to be any longer than Seller has to be.
I can understand and empathize with a home seller who, financially, may not be able to make any repairs, no matter what the cost and no matter how important they may be to the buyer. That seller really is in a distress sale situation, and some kind of upfront as is disclosure should be made. But, if a home seller can realistically make necessary repairs, but would “rather not,” come on…