John M. Lee: Buying a Property 'As Is'

In today's real estate market, most sellers are still able to sell their properties "as is." What exactly does that mean? What are the ramifications to both the buyers and sellers? Is it a good idea?

Even with the slight slowdown in the summer real estate market, there are still multiple bids on many properties, and some buyers are tempted to submit "as is" offers to sellers so they can have an advantage over other buyers.

When a property is sold "as is," it usually means the seller will not warranty the condition of the property. The buyer buys the property in its current condition, and takes responsibilities for correcting any and all defects. Some properties are sold "as is" because the seller acquired the property through adverse conditions, such as a probate or foreclosure.

In this case, the seller might not have any knowledge about the condition of the property, and thus cannot disclose much, so the property is sold in "as is" condition.

In the past, buying an "as is" property meant purchasing it without the benefit of any inspections. Even as recently as 15 years ago, many houses were purchased without inspections.

However, a contractor and a pest control inspection are commonplace in today's real estate transactions. As a real estate professional, I would never recommend buying a property without inspections unless the buyer is very sophisticated or intends to tear down the whole building. Instead, if the buyer is willing to purchase the property in its present condition, I would recommend buying it, but subject to inspections. I have seen many hidden defects in homes that looked perfectly fine. Getting an inspection and paying for it is what I call cheap insurance for such a large investment.

I would advise the buyer that if the seller rejects his offer because someone else is willing to buy it without the benefits of inspections, so be it because there is always a bigger fool out there, and it would not be in the buyer's best interest to purchase in this manner.

Alternatively, on a probate or foreclosure sale, where offers must be "as is" with no inspection contingencies, I would recommend that the buyers obtain their inspections up front before the offer is prepared. Even though it will cost them several hundred dollars, the expense involved is miniscule compared with the investment.

From a seller's standpoint, I would also advise allowing full inspections for potential buyers. If a seller does not allow inspections, and problems are discovered after the close of escrow, the buyer can always come back and sue the seller for non-disclosure and not allowing the buyer to do his or her own inspections, especially if the seller allowed the buyer to obtain inspections, these defects would have been discovered and would have materially affected the value of the property.

Also, by allowing inspections, the seller has shifted some liability to the buyer.

In today's real estate environment, many times sellers will spend the money to hire a termite inspector and a contractor to inspect the property prior to putting it on the market. I believe this is a prudent move as all the defects will be disclosed up front and the buyers may then make an intelligent decision on what the property is worth and if they are willing to tackle the work after the close of escrow.

Also, this will eliminate a second round of negotiation that inevitably occurs if the inspections are performed after the offers are accepted and damages are found. In this litigious society, both buyers and sellers cannot be too careful and should take every precaution possible to minimize any surprises that can occur after the close of escrow.

Buying properties "as is" without the benefits of any professional inspections can increase the possibility of problems for both buyers and sellers.

If you have any questions regarding real estate, you can reach John M. Lee at (415) 447-6231 or e-mail him at johnlee@isellsf.com.