What is an "as is" sale?
Most pre-printed real estate purchase contracts include a seller warranty clause. Although these clauses vary, they usually provide for the seller to deliver the property to the buyer with a water-tight roof and with the operating systems of the house (plumbing, electrical, heating, cooling, built-in appliances) in working condition. The clause might also require the seller to disclose known defects.
A property that is sold "as is" doesn't include a seller warranty regarding the condition of the property. A buyer who purchases a property "as is" agrees to buy it in its present condition. The seller is not required to make repairs to the property before closing. However, an "as is" sale may not relieve the seller of the responsibility for disclosing known defects.
Foreclosures and probate or estate sales (where the property owner is deceased) are usually "as is" sales. The person responsible for selling these properties (executor, administrator or trustee) may have little, if any, direct knowledge about the property. Such a seller might be unable to provide the buyer with any information about defects.
Homes for sale that are advertised as "fixer-uppers" are often sold "as is." "As is," in this case, might mean that the property needs a lot of work, which the seller won't complete before closing. The price is often discounted to compensate for the poor condition of the property.
Before buying a property "as is," have it thoroughly inspected. Get bids from reliable contractors so you will know in advance how much it will cost to refurbish the property. Pad the cost estimates on the high side.
An "as is" property that's in such bad shape that you can't live in it until work is done will involve an additional expense. You'll need to pay the mortgage while continuing to rent elsewhere until the house is habitable.
Financing an "as is" purchase can be difficult. The federal 203k mortgage program is an option for some buyers. Contact HUD at (202) 708-2720 for more information.
Buyers in search of conventional financing should check with portfolio lenders who may be more lenient regarding the property condition. When shopping for a loan, let the loan agents you talk to know up front that you're looking for an "as is."
FIRST-TIME TIP: The best time to buy a fixer-upper, in terms of the investment potential, is when the market has bottomed out and is turning around. The worst time to buy a home "as is," with the idea that you'll restore it for a profit, is when the market has peaked and is starting to decline.
Investigate the local marketplace carefully before taking on a major fixer project.
THE CLOSING: Buying a fixer-upper for a first home could be a mistake if you're short of funds and know-how. If you do elect to buy a fixer, the safest route is to fix up the house and live in it for several years before selling.
Dian Hymer's column is syndicated through Inman News Features. Send questions and comments care of Inman News Features, 5335 College Ave., No. 25, Oakland, Calif. 94618.