What Does It Mean to Buy An “As-Is” Home?
When you’re shopping for homes, you may find some that are in your price range but are listed as being sold “as-is.” What does this mean? When a home is being sold “as-is,” it means that the buyer agrees to accept whatever condition the home is in at a certain point and that the seller is not responsible for making repairs to the home after that point in time.
A home being sold “as-is” is a bit like including a “what you see is what you get” clause in a home’s sale. All types of homes can be sold as-is, and the legal stipulation can be put into effect at different times during the buying process. Not only can this be confusing, but also states differ on what can be sold “as-is” and when.
Three times a home may have an as-is clause:
As-is properties are often a part of a foreclosure situation. Homes that have been repossessed by the bank after their owners stopped paying their mortgage are also known as REO or Real-Estate-Owned properties. These properties are owned by the banks, which need to sell them in order to break even or make a profit on their loans. Unfortunately, since the bank owns the property and has never lived in the home, they aren’t sure what condition the home is in and therefore often list the homes “as-is.”
A short sale is when a bank and a seller have agreed that the home will be sold for less than what the seller owes the bank. Because of this, short sales often take a long time and are usually the first step before a foreclosure. Since the seller is already agreeing to take less money than they owe the bank for the home, these sales are often considered “as-is.” The seller will not have money to make repairs or updates to the home. The buyer must understand that they will be getting the home exactly as it is from the seller before entering into a contract.
Almost all home sale contracts have a stipulation that the home is considered “as-is” at some point during the home buying process. Usually, the home is considered “as-is” after closing, once the home passes in ownership from the seller to the buyer. After that, the contract states that the state of the home is what it is, and the seller will not be responsible to make any changes after closing, regardless of what problems crop up. Of course, these sales also should include disclosures and should be contingent upon certain qualifications, such as a home inspection.
Disclosures and Contingencies
Although disclosure laws differ by state, many states require the listing agent or the seller to disclose any known problems that a home may have before closing. For a normal sale, this can be helpful for a buyer to weigh the pros and cons of purchasing any given home. For a bank-owned property, though, disclosures will often be less than helpful, since the bank doesn’t have any background about the home or its potential problems as the bank employees have almost never been inside the property extensively.
That’s why it is normal to make an offer contingent upon a home inspection. That way, if a home inspector finds something terrible in the structure of the home, a pest infestation, or something else that would be a costly repair, the buyer can ask for the problem to be fixed, the price to be reduced, or they can back out of the sale.
If the seller decides to fix the problems in the home themselves, the home’s sale will then become contingent upon the fact that those problems will be fixed before closing.
When should you buy an “as-is” home?
If you decide that you want to purchase a home that is listed “as-is,” make sure you have thought about these elements first:
- Even though the home’s seller is not going to drop the price or repair the problems in the home, get a home inspection and still have the sale contingent upon the home inspection report. If you find things that are too costly, you can back out of the sale.
- Ask to have a termite and structural inspection done on the home as well if that is not included in your home inspection. If you are comfortable with the repairs in the home you would be responsible for, then put an offer down.
- Ensure you have enough money to complete repairs and replacements before you purchase. Most home insurance and home warranties will not cover problems that are already disclosed or found in the home inspection report.