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The Pros and Cons of an "As Is" Home Sale What is an "as is" home sale? I was recently asked this question by a waitress at my favorite coffee shop. She and her husband have been shopping for a home, and they encountered several that are listed "as is." I explained an "as is" home sale means the seller won't pay to repair any defects. However, the seller must still disclose all known defects in the residence. An "as is" sale is not a way for the seller to hide known drawbacks of the residence. Why some home sellers sell "as is." Next, she asked me "Why would anyone sell a house 'as is'?" She went on to say an "as is" home sale made her untrusting of the seller. I explained there are many reasons for an "as is" sale:
Many sellers want to move on. They don't necessarily insist on earning top dollar from their home sale. In a local "sellers' market," where buyers outnumber sellers, realty agents often advise their sellers that making repairs isn't necessary, due to the strong buyer demand. Also, if the home needs many repairs, some sellers don't want to put up with the inconvenience of having extensive repairs made while they're still living in the home. An equally important reason is the seller might not be able to afford the obviously necessary home repairs. They prefer letting the buyer fix up the residence to the buyer's preferences. Many sellers, especially the elderly, are not capable of arranging extensive repairs before putting their homes on the market for sale. Interviewing contractors and discussing essential home repairs, without getting "ripped off," are beyond the ability of many sellers. They just want to sell and move out. As an investor in rental houses for 35 years, I've purchased many "as is" residences, including my current home. They can be great bargains. Or, they can be money pits. A buyer of any house should always include in the purchase offer a contingency for the buyer's approval of a professional home inspection. Buyers should always accompany their professional inspectors to discuss any unexpected home defects discovered. What looks like a serious defect could turn out to be insignificant. For example, I recall offering to buy a rundown "as is" house with grass growing on the roof. When I showed it to my banker to obtain a mortgage, he jokingly said, "Bob, do you realize you're buying an agricultural use in a residential zone?" But he approved my mortgage anyway. The big, obvious problem with the house, in addition to grass growing on the roof, was a nasty crack in the brick fireplace. The listing agent later told me many potential buyers rejected the house when they saw that crack. But my professional inspector, after he thoroughly inspected the brick chimney in the attic, told me it would cost only about $150 to repair that crack with special fireplace mortar. He was right. I later resold that "as is" house, which I bought far below market value, at an excellent profit. Several well-known major realty firms, probably advised by their lawyers, recommend their sellers sell "as is" to avoid possible future liability to buyers. I strongly disagree. An "as is" listing is a red warning flag to potential buyers who usually will think something is wrong with the residence. Sometimes an "as is" sale means the seller is trying to conceal defects, hoping the buyer won't learn about them. Advertising a home that's in reasonably good condition for sale "as is," to avoid possible future seller liability, often harms the seller more than it helps. An "as is" sale raises the old "caveat emptor" (let the buyer beware) warning of days long gone. Innocent buyers frequently refuse to make purchase offers on "as is" homes because they aren't really sure what it means. For the seller who doesn't want to make any repairs, a better approach than an "as is" sale is, at the time of listing, to obtain a professional inspection report and then make it readily available to prospective buyers. An "as is" seller, who for various well-founded reasons doesn't want to pay for repairs, should obtain a professional inspection report, plus customary other reports such as for pest control or termites, to reassure buyers. There are proper situations for "as is" sellers. But sellers should be aware of the major drawbacks, such as (a) lower buyer demand for the house and (b) reduced sales price compared to similar home sales of nearby houses in better condition. Situations in which "as is" sales are advisable include (a) when the seller hasn't lived in the house recently; (b) foreclosure sales when the foreclosing lender has no knowledge of the residence's condition; and (c) estate sales when the estate executor or administrator is not familiar with the property and is not aware of any defects. For example, about three years ago, my 13-year "star tenant" moved out of my rental house because her family was grown and she no longer needed a four-bedroom house. After she vacated and I thoroughly inspected the house, I realized it would need considerable fix-up work. A friend's two young sons, just starting out in their realty investment careers, were eager to buy the house. We signed an "as is" sales contract. Later, they told me my "star tenant" left an attic full of junk that had to be hauled away at considerable expense. I'm sure glad I sold "as is" because I didn't even know that house had an attic. "As is" homes can be bargains for buyers. Purchasers should not automatically avoid "as is" homes listed for sale. But, as explained earlier, an "as is" sale should alert buyers to be extra-cautious and to have professional inspections to discover any hidden defects that the seller "forgot" to disclose. As the old saying goes, "Don't steal in slow motion." Act quickly to negotiate the purchase of a bargain "as is" residence before another buyer discovers it. However, keep your purchase offer contingencies to a minimum because "a confused mind usually says no." Of course, make your purchase offer to buy an "as is" house contingent on your approval of a professional inspection. If the inspection reveals no serious, undisclosed defects, proceed with the purchase. Conclusion. "As is" home sales should not automatically be rejected by buyers. Sellers must still disclose known defects in such residences to potential buyers. An "as is" residence can often be a tremendous bargain, especially if you are looking for a profitable fixer-upper house. But be extra-cautious about "as is" sales, which mean the seller won't pay for any repairs, and make your purchase offer contingent on your approval of a professional inspection report on the residence. Copyright 2002 Tribune Media Services |
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