What is an “As Is” Sale of Real Estate?

Old Home to be Sold "As Is"An “as is” sale of real estate is pretty much what it sounds like: the seller is listing the house in its current condition, and is not willing to make repairs or improvements, nor to give a buyer credit for needed repairs or improvements. With a house that is being sold as is, the price will probably reflect the fact that it may need significant work. It might be priced significantly lower than other houses in the neighborhood. If you are looking to move into an area that is otherwise out of your price range, and especially if you are handy with home repairs, an “as is” house can offer you a great opportunity to fix up the house the way you like it in a desirable location.

Why might a home be sold “as is?” There are a lot of reasons. The home may have been occupied by an older person who has passed away or moved into a nursing home. Loved ones or heirs may want to unload the house in a hurry. The seller might be someone who needs to downsize for health or financial reasons, and doesn’t have the resources to fix the house up to get maximum value on sale. In recent years, many “as is” sales have been of properties that were foreclosed on.

Whatever the reason a house is being listed for sale “as is,” there are things that both buyers and sellers should think about in order to have the best possible experience in the transaction.

Buying a House “As Is”

Buying a house “as is” can offer tremendous opportunities. You may get the house for far below market value, and rather than paying for updates that the seller chose, you can use the money to get the updates and style you want in the house. If you are a fan of shows like “Flip or Flop,” you have seen the transformation that some time and money can work on a house.

Be mindful that TV does not always reflect reality, however. While those shows often show a dramatic surprise repair the flippers weren’t expecting, all is usually well by the end of the episode, with money made on the flip. Rarely do you get to see a true “flop,” in which the needed repairs are so extensive that the low purchase price of the property isn’t worth it. That’s bad enough if the “as is” home is investment property, but it can be a nightmare if it’s the house you need to live in. Most people simply do not have the cash reserves to deal with multiple significant repairs.

How can you avoid buying a so-called money pit? The answer is to have a thorough home inspection by an experienced, qualified home inspector. Typically, a home inspection costs between $300 and $500. Don’t look at this as an expense; it is an investment that could save you tens of thousands of dollars. A good home inspection means someone with a trained eye is looking the house over from roof to basement or crawlspace, and everywhere in between. Your inspector works for you, not the seller, and he or she will identify not only existing issues, but ones that are likely to crop up in the years to come.

A buyer of any home should invest in an inspection, but it’s especially important for buyers of homes being sold “as is.” The seller, especially if an out-of-state heir or a bank, may not know how the home was maintained, leaving big, and potentially costly, question marks.

How do you arrange for a home inspection? Once you and the seller have signed a contract and you have put down a deposit, the inspection can take place; your real estate attorney or realtor can help you find an inspector. While most real estate agents are ethical, be aware that your real estate agent has a financial stake (his or her commission) in the sale going through. You may want to get recommendations for an inspector from your attorney, who is bound to protect your interests.

And you should have a real estate attorney if you are purchasing a house “as is.” Real estate contracts should not be boilerplate. You are making a large investment and this document determines your rights and responsibilities. If your attorney is not the one that drafts the contract, he or she should at least look it over thoroughly and explain every detail to you. Your attorney should also make sure the contract contains a contingency for the home inspection, so that if the home inspector reveals bigger problems than you want to deal with, you can get out of the deal and get your deposit back.

One question a buyer of property listed “as is” should ask is whether any previous buyers have backed out of a sale after inspection of the property. Some states require sellers to disclose this information on a form, but Michigan does not.

Selling a House “As Is”

If you are considering selling your house “as is,” be aware that doing so also has its pros and cons. On the one hand, listing the house “as is” alerts potential buyers that it is a “fixer upper,” and winnows out those who are not willing to invest the time and money. Of course, listing “as is” means that you don’t need to invest your own time and money in increasing the home’s appeal prior to sale. You don’t have to unearth every possible thing that might be wrong and fix it before the real estate agent plunks a “for sale” sign on your lawn.

Selling a house “as is,” however, does NOT mean that you do not have to disclose known problems with the home. You don’t have to tell potential buyers about that squeaky step, but major issues, like lead paint, encroachments on the property, carpenter ants, or flooding. Failure to accurately fill out the Michigan seller’s disclosure form could result in legal action against you. To be on the safe side, consider having an experienced Michigan real estate attorney’s help if planning to sell your home as is. We invite you to contact our law office for a consultation.