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Selling a Home "As-Is"

Jan 10, 2008
What's an "as is" sale? Most sales in California are "as is", because most sales are performed using the California Association of Realtors standard Purchase Agreement, which is an "as-is" contract. This means that the seller intends to sell the home in its present condition, without fixing anything that needs fixing.

Most properties in California are sold this way. In truth, all sales are "as is" whether the contract says they are or not. What seller would agree to fix every issue that a buyer's inspections turn up? None that I've ever met!

Consider that you want it stated in the MLS and in any purchase contract that the sale is "as is". You might want to do this, for example, if you have done the common reports (termite, home, etc.) and disclosed other issues that affect the property's value - and have priced the home accordingly.

You've found a buyer, and go into escrow at an agreed upon price, but you have made the buyer sign-off on the reports and disclosures. The buyer has gone on record as part of the contract saying she has read and acknowledged the disclosure information.

During the course of the buyer's investigations, the buyer discovers some additional issues with the property, which were not disclosed by you. Perhaps she got a second termite inspection that uncovered far more damage, or a roof inspection turned up that the roof was damaged in places and is in need of repair before winter.

The standard California Association of Realtors "Purchase Agreement" contract gives the buyer an investigation period (by default, it's 17 days but is negotiable). The buyer is free to withdraw from the purchase agreement at any point up to the expiration of the investigation period.

At the end of this time, the buyer must "release contingencies," signing another document acknowledging that her investigations have been satisfactory and that she agrees to proceed with the purchase of the property.

Even though you may have had the buyer formally acknowledge in the contract that this is an "AS IS SALE", the buyer is still free to re-negotiate anything she wants at this point. The seller can refuse to negotiate with the buyer, which leaves the buyer with the choice of proceeding with the purchase as the contract states, or backing out of the purchase as the contract allows.

If, however, you and the buyer can come to some agreement, the buyer will increase her deposit (usually, doubling it from the initial deposit) and be locked into contract. If she backs out, she'll be losing her deposit, so you know that from this point forward, the deal is going to be pretty solid - what buyer is going to want to lose all that cash?

Let's say that at this critical point in the sale, the buyer is telling the seller that all she needs to do is pay $5,000 of the buyer's closing costs. This is $5,000 cash money that the buyer would otherwise be out, because even with a 100% financing loan, the buyer must pay at least her closing costs, which are at least 1.25% of the purchase price.

With this $5,000 credit from the seller for closing costs, the buyer will have money in her pocket to fix the leaky roof which she didn't know about when she went into contract. And without the roof repairs, she'll have a hard time through the first winter. Is the seller going to say no, especially if saying yes means that the sale should then proceed without further dickering?

Some sellers will say no, and the buyer can either proceed with the sale or back out, get her initial deposit back, and be on her way. Other sellers will respond by offering to pay, for example, half that amount. Everything is negotiable - no matter if you say "as is" or not!

My advice? If you think that your ideal buyer is someone is looking for an "as is" property - go ahead and put that in the MLS description and in the advertising. If you don't think your ideal buyer is really looking for an "as is" property, don't mention it!
About the Author
This article was written by Seb Frey, a Real Estate Broker and Realtor in Capitola, California (Santa Cruz County). Seb runs the county's most-complete Real Estate web site, SantaCruzHomeBroker.com. Seb is fluent in Spanish, and works with buyers from all walks of life, helping them to buy or sell Santa Cruz real estate.
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