What does it mean to buy a property as-is and what are the risks to real estate investors?

As you look at real estate deals you’ll see the term “As-Is” on properties, so what does it mean?  Here’s a breakdown of exactly what “as is” offers mean and what real estate investors need to know about making offers as-is and how to protect yourself.  I’ll also include a free downloadable template that will help you do these kinds of deals safely.   

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Now for today’s class on making real estate offers “as is”…

As is in real estate, what does it really mean? Does this mean I’m obligated to buy the property if I offer?

A property marketed in “as is” condition usually indicates that the seller is unwilling to perform most if not all repairs. It could also mean that it is priced “as is”, which is typically lower than market pricing in the area.

An as is state means that the seller likely knows there are defects that affect the value of the property, or the property is exempt from disclosure, such as held in a trust. Home built prior to 1978 still require a lead based paint disclosure, even if listed as an as is property.

What about the Seller’s Disclosure?  (SD)

If defects are noted in the Seller’s Disclosure then those are known defects apart from the as is state that are not permissible to regain EMD if the buyer chooses to back out.  Only conditions not stated on the SD, found in inspection can be cause for a mutual release of EMD, ptc, during the inspection period after EMD funds have been passed.

Finally, “as is” is in the condition at the time the offer was written, and should something happen to the property from the time the offer was written to the closing time which alters that condition, then that property is no longer “as is”, as it was, and should be brought back to its original “as is” condition at the time of offer, at the cost of seller- such as a catastrophic event like fire.

Does the buyer have a protection or a way to back out?

Or in the alternative, the seller should release the buyer from their obligation to purchase and refund the monies spent by the buyer, such as earnest money. Remember, as we’ve talked about before, the SD and as is state upon time of listing is to be of the current state of the property. Or in the alternative, the seller should release the buyer from their obligation to purchase and refund the monies spent by the buyer, such as earnest money.

Key things to take note of on the as is addendum to be sent with any and all as is purchase agreements
Except as modified by this Addendum, all of the terms and conditions contained in the Purchase Agreement remain in full force and effect. In the event of any conflict between the terms and conditions of this Addendum and the terms and conditions of the Purchase Agreement, the terms and conditions of this Addendum shall prevail.

Meaning, if a defect is found the as is Addendum takes ruling in returned funds.

Seller acknowledges and agrees that selling the Property “As Is” does not relieve Seller from applicable legal obligations to disclose any and all known material latent defects in the Property and the improvements thereon, if any, to Buyer.

The seller IS STILL legally required to disclose issues that they know about:

This means that if the seller knows there are issues that they are legally obliged to disclose such as lead based paint, they must disclose it- an as is state, is not above legal disclosure requirements. 

Buyer acknowledges and agrees that: Buyer has been advised to seek appropriate counsel regarding the risks of buying Property in its “As Is” condition; neither Buyer’s nor Seller’s respective brokers are qualified, licensed or required, to conduct due diligence or inspections with respect to the Property or the surrounding area; and (c) Buyer expressly releases and holds harmless brokers from and against any liability for any defects or conditions in the Property and the improvements thereon, if any.

A third party inspection?

This means that it is advised for the buyer to have a third party independent inspection and not rely on the word of either agent in regards to the property condition.

Buyer shall order all independent inspections after Acceptance of the Purchase Agreement. If Buyer’s inspections uncover any previously undisclosed defects in the Property, Buyer shall have blank days beginning the day following the date of acceptance of the Purchase Agreement to terminate the Purchase Agreement in which case earnest money shall be promptly returned to Buyer, and (ii) Seller shall have no obligation whatsoever to correct such defects to repair the Property as a result of such inspections. In the alternative, Buyer may waive such defect and the transaction shall proceed toward closing.

The buyer can still terminate the agreement?

If the Buyer does not terminate the Agreement in writing or request additional time to respond within the specified time period, the Property shall be deemed acceptable. This means that the buyer will have all inspections done in the time stated in the purchase agreement or request in writing further time to have more inspections done as the seller agrees to – in cases where additional experts may need to give guidance on things above and beyond the scope of a regular inspection such as mold remediation evaluation, foundation experts, wood destroying insects, sewer specialists, etc.

Do NOT tie up seller’s properties and be an LC

What sellers don’t want is someone to tie up the property for unreasonable inspection periods without passing along EMD- skin in the game and a mark of serious to purchase, unreasonable responses to inspection – like when a buyer asks for more than is reasonable to bring up to a live in state to simply counter the cost of rehab, or for buyers to not pass EMD prior to inspection and beyond the time stated in the PA to deposit EMD, aka the waiting game.

DO NOT PASS INSPECTION RIGHTS

Agents and brokers never want clients to pass on inspection and waive it, unless the buyer is a licensed inspector. HML’s will not always require an inspection to be done, but it’s worth doing as items found in the inspection as defects can be rolled into the SOW and in turn, the HML.

We will include a sample as is addendum for you in the link below.  If you want to do deals like this here in Indy, we can set up a time to chat and see if we’re a good fit to work together, but for now- go to BigREIA.com, go there and…

You’ll make the Universe SMILE.  = )

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