If you’re in the market to buy a home there’s a good chance you’ll come across a house being sold as-is during your buying journey. The term “as-is” indicates the owner’s desire to sell the property as it sits, making no repairs before closing.
While it could signal a red flag, this type of home sale is becoming a common transaction in today’s market, and in many cases could be a beneficial move for a buyer.
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What Does Buying a House As-Is Mean?
Buying a house as-is means you purchase a home in its existing condition. There are different types of contracts sellers can use. One is the standard “repair limit” purchase and sale agreement, where the seller is required to fix any issues on the home totaling less than a specific amount before closing. The amount will vary depending on the contract and can be as little as $500 or as much as 1.5% of the purchase price.
The second type, the as-is contract, basically allows the buyer sole discretion to cancel the contract for any reason within the inspection period.
“With the as-is contract, the seller is not required to make any repair whatsoever, even if something is found in an inspection,” says Marcia Socas, a broker with Castro Realty Group in Orlando, Florida.
By allowing a buyer to withdraw their offer during the inspection period without penalty, this gives buyers more flexibility and an easier exit.
What Types of Homes Are Typically Sold As-Is?
Bank foreclosures and other distressed properties in need of major repairs are exclusively sold as-is. Since as-is contracts were used with distressed homes in the wake of the Great Recession, many people believe homes being sold as-is need a lot of work.
“However, that’s shifted over the years. Now, it’s the standard way of selling regardless of home condition,” says Socas.
There are a few reasons a seller will sell as-is even if their home is in good condition.
— The seller needs to sell quickly for relocation or other purpose.
— It’s an inherited property and the heirs don’t want to deal with repairs to sell it.
— There’s a divorce or other legal motivation.
— The seller wants to get more competitive bids in a hot market.
Selling as-is more of an indication of the market and the fact that the owner would prefer not to make repairs, says Scott Beloian, broker and owner of Westcoe Realtors in Riverside, California.
“If it’s a completely hot seller’s market, a lot of sellers will sell as-is. In a buyer’s market, it doesn’t happen a lot,” says Beloian.
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How Does Buying a House As-Is Work?
“A lot of first-time homebuyers are scared when they hear as-is. They think they can’t have an inspection,” says Beloian. “However, you’re not buying it sight unseen. You can still do your inspections, ask for repairs and have time to decide if it’s the right home or not. As long as it’s within the inspection period, the buyer can walk away without repercussions.”
The as-is purchase offer contract is customizable.
“Contracts are fill-in-the-blank, where you can add in the desired inspection period,” says Socas. If it’s left blank, the inspection period goes to the default period for the state, which is typically 15 days, but can be longer. For example, in California the default inspection period for as-is contracts is 17 days, says Beloian.
In a seller’s market, Socas advises her clients to include a 10-day inspection period. However, if it’s extremely competitive, “sometimes we lower that inspection period to three days or even one day,” says Socas.
If the contract is accepted, the buyer places the earnest deposit money with the specified closing agent or title company. The seller relays all required disclosures about the home and the inspection period begins immediately.
The contract says buyers can cancel at the “buyer’s sole discretion.” If they discover they can’t get the financing terms they wanted, there are more repairs than anticipated on the inspection report or possibly a large, expensive issue is discovered with the home, they can cancel the contract without forfeiting the deposit so long as its within the inspection period.
If buyers cancel outside the inspection period, however, the earnest money deposit is forfeited to the seller, even with an as-is contract. If the buyer proceeds with the purchase, the closing continues as usual with a title company and the buyer assumes financial responsibility for the home’s condition as it sits at closing.
Does Buying a House As-Is Save Money?
For most, buying as-is doesn’t really save money, Socas says. Rather, she adds, “You have more flexibility with your options and have a more attractive offer with negotiating power.”
If the inspection report comes back and has something that needs to be addressed, you can still ask the seller to fix it with an as-is contract.
Since you and other potential future buyers can cancel without repercussions during the inspection period, a seller might be willing to negotiate so you don’t cancel the contract. This is especially true over something small or that regards safety, Socas explains.
Beloian says homes that need to be completely renovated can offer notable savings, but buyers will spend some or all of that savings on repairs to the home.
“A lot of times people can get a deal buying ‘borderline homes,’ where it’s not in complete disarray, is still financeable but needs some work,” says Beloian. “These can offer some savings, but in a tight market like we’re seeing today, these homes are few and far between.”
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Who Is Buying a House As-Is Right For?
“Buying an as-is home can work for anyone as long as they understand the advantages and limitations of that type of contract,” says Socas.
Since you can cancel without reason within your inspection period, there isn’t a huge risk involved when making an offer. “But you are taking on more responsibility to repair the property after that period,” says Socas.
Pros of Buying a House As-Is
— Buyers can cancel their contract within the inspection period for any reason without losing their deposit.
— You can still conduct inspections and even ask for repairs, although the sellers aren’t required to agree to make them.
— Using a short inspection period can help you have a stronger offer in a competitive market.
— You potentially get a good deal on a home because it’s priced for its condition.
Cons to Buying a House As-Is
— The home may need extensive repairs or be in uninhabitable condition.
— The poor condition of the property might limit access to financing.
— If you request repairs, the seller may deny them, leaving you financially responsible for repairs if you proceed.
— You must cancel the contract in the inspection timeline or lose your earnest money deposit.
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How Does Buying a House As-Is Work? originally appeared on usnews.com
