The family down the street is selling their home. If you didn’t attend the PTA meeting or go to the church with the family chances are you don’t know this seller. Unfortunately in today’s market we do know the seller. We can bet that the seller of that house is one of the following:
- Bank of America
- Countrywide
- Freddie Mac
- Fannie Mae
- Wells Fargo
- Chase
- Washington Mutual (WaMu)
I’m sure there are countless other banks that are selling Americas housing inventory but these are the major players right now. This, in turn, has created sellers (banks) that do not know the condition of the property you want to purchase. They have no idea that there could be cement hardened in the plumbing or that there was a leak in the roof, etc. This is the major reason why banks are selling their properties “AS IS“. In California they do not have to provide a disclosure of the condition of the property. Why would they, they didn’t live in it?
Banks are selling their properties, “As is” but what does, “as is”, really mean?
- Does it mean that once I make an offer I have to accept the present condition of the house?
- Does it mean that when I take a look at this house I have to sneak around and check everything before I make an offer?
This is what “As is” means:
“It means that you are purchasing this home in it’s present physical condition. The seller (bank) is selling you the house without any warranties or guarantees of its condition whatsoever. The seller (bank) will not repair or improve on anything, period.”
But does this mean that you have to purchase your prospective home blindly? The answer is NO.
Even though you are purchasing a property “As Is” you still need to know what “As is” is. Do you follow me?
This is why you should always elect to do a home inspection especially on a bank owned property where no one knew how the home was cared for and no one knows what happened right before the past owners left the property. They could have done some things that made the property unsafe or could have done damage that wiped out any profit you had calculated into the deal.
Since the banks want a quick escrow you should be prepared to throw out the custom 17 days to complete your inspections and bring it down to 10 days or sooner on your initial offer to the bank. I work with many investors here in Victorville California and the norm on home inspection periods has been 7 days and in some cases the banks have countered with 5 days to complete the home inspection.
You need to ask for this home inspection period so you can find out what the “As is” condition is of the property. Once you are satisfied with the present condition is when you proceed with the purchase. If not, cancel!
Yes, you lose out on the cost of the home inspection but that is the price you pay for taking a bite of apple so to say.
The cost of the home inspection is well worth it considering the headache you would have had in the future trying to make the house livable. Go Watch “The Money Pit” starring Tom Hanks and Shelly Long and you’ll be making sure you know the “As is” condition of every home you purchase from now on.
Good luck in all you do America
Photo: aka Kath
{ 14 comments… read them below or add one }
Buying a bank owned property can be risky business. On one hand you might get a really good price and on the other hand you might get a financial disaster. The banks can be hard to deal with but you don’t want to buy something without getting a good inspection.
Good stuff! Even though most people think they know what ‘as is’ is, this post will give them a better perspective.
Great post for any real estate investor! I was just wondering if it possible for one to avoid such risky bank owned properties, so that one can save on the home inspection costs? Since these properties are available for a relatively lower price, is it possible to sell them off for a higher price in the near future?
@Susan, thank you for commenting. Yes there are great bargains to be had. We just have to bite the apple to see if it’s a good one.
@Nick Johnson, Thanks for commenting as well. I hope I shed a little light on the “As is” question. Clients would ask me about this all the time. They would ask why do I need an inspection if I am buying it “As is”. Wouldn’t be just a waste of money since I can’t ask for anything to be repaired and such? I tell them yes in that sense it would be a waste but getting the inspection and finding the house’s true state will give you a chance to stay and play or walk away. LOL, gosh darn I love those little sayings.
@ Mike Lautensack, Great comment thank you. No matter if you are buying a bank owned home (REO), foreclosure or from a traditional flesh and blood seller you need to inspect what you are going to purchase. It’s just a good business practice. You never know how the property was cared for and what has happened to the property in the past as a leak in the roof or a crack in the foundation. Sometimes a shady homeowner will paint over a mold problem only to have it reappear months after you have already moved it. If you want to save a little money you might want to go look for a contractor that is very knowledgeable and that you trust to give your future purchase an inspection for a smaller fee. My recommendation is to use a professional home inspection company that carries E & O (errors and omissions) insurance and has some great references. You might want to get a sample of one of their reports on a previous home. You will get an idea of what is covered and inspected and what is not. And to answer your question about selling a bank owned home for more in the future depends entirely on future market conditions. Based on the current market and where it’s going it would be safe to say yes. But no one and I mean no one can predict the future and if someone wants to guarantee it you should just stay away.
Apply the same reasoning to a used car dealer who asks “why do you need to inspect the car, it is being sold as is”. You would do such a deal “sight unseen”, NOT. For all you know the motor may be gone totally, just like it is possible that the house may be totally gone.
@ Jim Wineinger, I like that analogy. You never know what’s lurking in the shadows.
Thank you, but your picture above is what made me think of it.
Very well put together and easy to understand…it amazes me how even new homes can have a 5 page summary of items wrong with it that the home inspector can find.
Yup… We look at a fair number of REO and short sale homes and the amount of work needed varies from manageable to ‘burn it down’.
One thing to remember is that if you are banging on short sales, you probably have 6 months before the bank gets back to you, so make an offer and take the extra time to really make sure you want it.
But, in any case I will definitely agree that you need to make sure you know what it is going to cost to put it back together.
I have had my issues with many virtual investing companies.
Tim Mai is a virtual real estate investor. A virtual real estate investor is someone who buys and sells properties Online. I spent $1000+ for his Cash-On-Demand course June 2008.
In July, September, and October, I noticed a charge of $197 on my credit card. I called them to inquire about the charges and someone said that they would get back to me and never did. I received an earlier email stating that the $197 was for the bonuses included in the package.
I read the emails I had received confirming my order and non of them quoted the price for the Cash-On-Demand System. I had no idea that, in addition to the $1000+ I did pay for the course, that I would be charged $197 for bonuses that should’ve been free! Like I wrote earlier they have not returned my phone calls or emails and it’s been four months.
My warning to everyone out there is to be wary of self-proclaimed real estate gurus who charge a bundle for their courses and then, bombard you with webinars that focus on upselling new products at a higher price. That is the purpose of these webinars, which are nothing more than joint ventures where everyone makes out like a bandit
On the subject of gurus, I would tell people to pretty much stay away from them. There are few real estate investing classes or courses that are worth bothering with.
@ Dj Morris, Thanks a bunch on your comment. I appreciate it. Yes it amazes me how a new home can have so many defects. You would think it would be a blank report. We are all schooled that new can have it’s greater share of defects than a seasoned home.
@ Chris Cliff, Thanks for commenting on my article Chris. Lol, I laughed at the part where you say burn it down. I like that, lol. And about guru’s you just have to get all the info from them and take the best of it to incorporate into your investing tool box. If you can get a tip that gets you a great deal now and in the future then it was well worth it.
@Habeeb, Thank you for taking the time to comment on my article. I have never heard of virtual investing and Tim Mai. I learned something new today, lol. It’s very tempting to purchase a new course from a real estate guru because it sounds soooo good. I get tempted all the time because you want to have something the other investor does not. You want to find out something your competition is not using. This is what drives the majority of their customers. Best thing to do is just purchase their course on eBay after someone else spent all that money on their course and now wants to just get it out of their sight. Sorry you had to learn the hard way but that is what you should take from this. It was a lesson in business. You should read all the fine print and review what you are going to purchase on the internet. Read what other people have experienced from the guru before you invest in their course. Let’s take for example John Becks Free and Clear tax certificate course. I had heard a bunch about tax certificates and wanted to get more info. After researching a little further online I read that they want to up sell you on a website membership and mentoring etc. along with the course. I passed. I am sure there is great info in the course but I am sure I can find comparable books on the subject for FREE at the local library. Take care.
Wonderful article Winston! You answered 2 questions for me: What does “as is” mean, and can I cancel the contract.
Thanks man!