Selling your home "as-is" is a viable strategy in today's hot markets, but it doesn't free you from making legally mandated disclosures.
Quite the contrary.
Buyers likely will be particularly suspect about your home's condition and equally persistent about learning just what your home's "as-is" is.
Even if the buyer doesn't ask about the condition of your home, not telling what you know could leave you liable for non-disclosure after the sale closes.
"As-is has nothing to do with non-disclosure of known defects," Ray Brown, co-author of "Home Selling For Dummies" (IDG Books, $16.99).
"It simply means you are not providing any guarantees or warranties to the buyer as to the condition of the property and will not make further allowances, credits, or price reductions for any problems with your property," Brown added.
Hot markets, like those in many localities today, make as-is selling a useful option. FSBOs (for sale by owner), looking every where to save money, commonly use the as-is sales approach.
"In a hot seller's market people sell as-is because they know buyers are not as picky with repairs and in selling as-is they save money on possible repairs and the headaches and hassles of repair jobs," says Robert Aldana a real estate agent and publisher of the Let's Talk Real Estate Web site.
"Also, selling as-is can save the seller from further expenses that crop up on the ever popular "supplementary report." The report is used when you are quoted an amount for repairs, only to find out that, when they were doing the repairs, they found further damage that sometimes doubles the original repair bill. With an as-is sale, a seller needn't worry about the report because they are not having the floors and walls torn up," Aldana said.
As a wise seller, however, spend some of your expected as-is windfall going over the home with a magnifying glass to ferret out and disclose its true "as-is" condition. That could include hiring not only a professional general home inspector, but also a major appliance inspector, roof inspector, chimney inspector, termite inspector, foundation inspector, and others as needed.
While the buyer can't sue you for unknown defects, claiming ignorance about some easily detected defects may not be a strong defense, says Ron Rossi a real estate attorney in San Jose, CA.
"Most real estate trial attorneys will agree that it can be difficult to prove a seller didn't know about a problem. Some cases have even said that the use of an ''as is'' clause amounts to a ''red flag'' and puts a potential buyer on notice of potential problems," Rossi said.
If you don't inspect the home, your buyer likely will if only to quell suspicions about hidden problems he suspects you are aware of but aren't disclosing.
Beyond helping remove liability by allowing you to make clear and specific disclosures, inspections offer additional benefits.
Inspections indicate your honesty, openness and willingness to identify your home's "as-is" condition.
Your inspection report, provided it's a professional narrative, could convince the buyer further inspections are not necessary, saving both of you time (which is money) on the transaction.
Inspections, before you list your home, give you time to correct problems that could affect the health and safety of future residents -- problems that could cause the lender to balk. That doesn't mean you have to change your "as-is" strategy, only that either you or the buyer must complete the work before the sale can proceed.
"If a buyer finds defects and does not back out, but demands that you do the repairs, you are not obligated to do any repairs and can cancel the contract and find another buyer. The lender's requirements do not change your obligations in your sales contract. You weren't obligated to do any repairs because of the "as is" clause," said John Reyes, a real estate agent with RE/MAX Group South Bay in San Jose, CA.
Written by Broderick Perkins
May 12, 2000
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Negotiating Corrective Work |
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Typically, at the time the buyers submit an offer, neither you nor the buyers know whether your property needs any corrective work. That uncertainty is why contracts usually have provisions for additional negotiations regarding credits for repairs after the necessary inspections are complete.
If property inspectors find that the property requires little or no corrective work, you and the buyers have little or nothing to negotiate. However, the inspectors may discover that your $200,000 house needs $20,000 of corrective work for termite and dry-rot damage plus major foundation repairs. |
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Big corrective work bills can be deal killers
We recommend that you or your agent be present during every property inspection so that you get firsthand reports about any damage that the inspector discovers. The buyers should also give you copies of any and all inspection reports for your review before you meet with them to negotiate a corrective work credit.
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This is the moment of truth in most house sales. Buyers don't want to pay for corrective work; neither do sellers. Your deal will fall through if you and the buyers can't resolve this impasse. |
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Determining who pays for corrective work is the other time when you must know comparable sales data. If you hire an agent who knows neighborhood property values, your agent can forcefully present facts regarding the physical condition and terms of sale of other, supposedly comparable, properties during corrective work negotiations with the buyers and their agent. |
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If there is major corrective work, it is critically important that you accept the fact that your house's value has just been slashed by the cost required to repair it. Don't go into denial. You must face the facts. Remember: Good negotiators are realistic. |
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You have other options for resolving the impasse. For example, you can refuse to pay for repairs found by the buyers' inspectors. You have the right to question the impartiality of their inspectors and the validity of inspection reports for which they paid. If these issues concern you, consider getting your own inspections to refute theirs. Realize, though, that a good inspection will probably set you back several hundred dollars, and your inspectors may end up verifying the buyers' inspectors results or discovering additional corrective work. |
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As a last resort, you can threaten to pull out of the deal if the buyers don't back off on their demands. In a strong market, this strategy may work. However, sellers who kill the messenger often regret their decision. Like it or not, you're stuck with the damage. |
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Even if you drive away the buyers who discover damage to your house, you may still have a legal obligation to tell other buyers everything you learn about the required corrective work. Any such disclosure will probably lower the price that a future buyer will offer for your house. All things considered, working things out with the buyers who uncover the damage is certainly much faster and probably no more expensive than waiting for another buyer. |
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Lenders also participate in corrective work problems. They get copies of inspection reports if borrowers tell them that a serious repair problem exists, if their appraisal indicates a property obviously needs major repairs, or if the contract contains a credit for extensive repairs. | |
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Solving major repair problems
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Have repairs finished prior to closing and present paid bills and warranties to the buyer at closing. |
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You credit the buyers directly for corrective work at the closing. Lenders usually don't approve of this approach, because it raises uncertainties about whether the corrective work will actually be completed. If it isn't, the security of the lender's loan is impaired. |
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Join with your buyers in obtaining competitive bids on the repair work from several reputable licensed contractors. Use bids to establish the amount of the corrective work credit. This approach doesn't bother good buyers. They don't want to get rich from your misfortune. All they want is what they thought they were buying in the first place -- a well-maintained house without termite or dry-rot problems and with a good foundation. | |
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Copyright ? 2001 Hungry Minds, Inc. All rights reserved. |
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