What does "As Is" Mean in Real Estate
What You Should Know
- “Sold as Is” properties typically sell for a discount, but there are no guarantees to the quality of workmanship.
- The seller does not want to make any renovations before closing; that is the job of the new owner.
- Buyers need to be cautious and conduct various inspections.
- Buyers can walk away from a “sold as is” deal by negotiating a subject to inspection clause.
You can view a "sold as is" listing as a higher risk, higher reward property. Although the house is likely cheaper than comparable properties, there are no guarantees for the quality of workmanship. Your home insurance policy may also be more expensive due to uncertainties. Additionally, the seller does not want to make any renovations before selling. This means the buyer needs to pay for the required changes after buying. The risk is that the buyer's new property could be missing appliances, have unpaid property taxes, or even structural damage.
Although the seller is legally required to disclose known issues, it is up to the buyer to inspect the house. If the buyer discovers any problems, it's unlikely the seller will negotiate the price. People normally sell their home as-is because they want to quickly get rid of it or just want to save money. Sellers may also individually sell their home FSBO to avoid paying real estate commissions.
What does "Sold As Is" Mean in Real Estate?
Typically when submitting an offer to buy a home, certain conditions must be met for the transaction to finalize. The offer is known as the agreement of purchase, and standard conditions include mortgage financing, sale of the buyer's property, along with an inspection.
A "sold as is" clause means the seller is unwilling to make any repairs before selling. If there are any issues with the property, the buyer will be responsible for all costs to repair them after closing.
A common misconception about as-is homes is that the buyer is forced to purchase the house even after discovering the issues. This is not true but highlights the importance of a quality "subject to inspection" clause. It can be negotiated that the buyer has the right to walk away if the inspections reveal a significant issue.
How to Sell My House As-Is
It's best to consult with an experienced real estate agent before selling as-is. The seller needs to make all disclosures known to potential buyers. This should include information on any repairs that are required.
However, there are no guarantees to the seller's information. As a result, buyers commission their own inspections and determine if they want to purchase the property. With a "subject to inspection" clause, buyers can back out of a deal if they find anything seriously wrong after signing transaction documents.
To limit complications and avoid costly mistakes:
- Have your attorney prepare a statement of condition and other required disclosure forms.
- Complete a property inspection before accepting an offer.
- Communicate any repairs needed in the statement of condition.
- Get professional assistance from a real estate agent when you list and sell your house "as is."
What are the Pros and Cons Of Selling As-Is
| Pros | Cons |
|---|---|
| Possible Faster Sale: Selling "as is" means you do not need to make any repairs before selling. Additionally, as-is deals tend to attract property "flippers" and investors who offer to pay in cash and close fast. | Dealing with Property Flippers & Investors: Most homebuyers look for move-in-ready properties and won't want to deal with repairs after buying. However, property investors actively seek "as is" deals to potentially receive a higher return on investment. Unfortunately, one of their tactics to increase ROI is to lowball the seller. |
| No Need for Repairs: If you sell your house "as is," it means that the buyers will have to deal with any problems in the home. They will deal with the repairs and hire contractors if needed. | Negotiation and Haggling: Through dealing with property flippers and investors, you could find yourself spending lots of time negotiating the price. |
| Liability Potential: Each province has specific laws about what the seller needs to disclose. It's essential to become aware of this; otherwise, you could be sued for knowingly hiding information. |
Tips for Successfully Purchasing a "Sold As-Is" Property
It is best to approach a "sold as is" property with caution. Although these properties sell at a discount, the new owner could find themself with expensive repairs that cost much more than the discount.
This is why it's essential to do a thorough inspection to uncover all potential issues with the property. Some popular inspections include, but are not limited to:
- structural & mechanical home inspection
- wood-destroying insect & rodent inspection
- radon test
- oil tank sweep
- other inspections such as a chimney or pool inspection
Even with various inspections, it is vital to set aside additional funds for unexpected expenses after you purchase. It is also worth noting the cost of these inspections. As a result, a potential buyer could spend thousands of dollars to uncover a massive issue that the seller is not willing to negotiate on.
In competitive markets, there could be multiple buyers inspecting the property at the same time. As a result, the property could be purchased before a specific buyer finishes their inspections. In this scenario, a savvy buyer could leverage an option to purchase, preventing other offers for a certain period.
In any case, a buyer certainly needs to have a quality team behind them when approaching an "as-is" home. It's crucial to have an experienced real estate agent. Additionally, it's worthwhile to consider hiring a home inspector and possibly an attorney when buying.
FAQ
When selling my house "as-is," do I need to disclose any known issues?
Yes. Sellers must let potential buyers know about everything they may be inheriting when purchasing your home. Review your province's disclosure laws to determine what you need to disclose for your sale to be legally binding.
What if a buyer tries to sue for undisclosed problems?
Lawsuits can be difficult and costly. If you have disclosed everything within your statement of condition, buyers will have a hard time going after you unless they can prove that the problem was deliberately concealed from them. To protect yourself as much as possible, disclose anything you might know about your house.
Why would someone buy my house "as-is"?
A potential buyer may not know how much work needs to be done to fix up your home. Because of this reason, you must disclose everything that might affect the value of the house for buyers to make an informed decision when they purchase. Property investors and flippers may also be interested in your "as-is" property because it can provide them with a high return on investment.
Can I sell my house "as-is" if I am in foreclosure?
Yes. Many people facing foreclosure will list their homes in "as-is" condition so they can offload them quickly. However, this is a risky move because you are in a position with less negotiation leverage.
What if I have a pest problem?
Hiring an exterminator will usually cost several hundred dollars. However, disclosing the issue within your statement of condition should protect you from problems further down the line because buyers are aware that there was a previous pest problem.
Who is responsible for fixing up my house after I sell it "as-is"?
Sellers are not obligated to fix anything, so the buyer is free to do what they want. However, If there are major problems with your home, the buyer may try to negotiate the price down even further.