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The Pros and
Cons of an "As Is" Home Sale
By Robert J. Bruss, Tribune Media Services
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:
The seller doesn't want to make repairs.
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.
The seller can't afford home repairs.
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.
The seller isn't capable of handling extensive
repairs.
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 is" home sales can be great bargains.
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.
Some realty agents advise selling "as is" to avoid
seller liability.
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.
When home sellers should sell "as is."
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.
(For more information on Bob
Bruss publications, visit his Real Estate Center).
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