Are all REOs sold as is?

Question

Hi, BPers, one quick question again. Are all REOs sold as-is? I would like to find some REOs that not sold asis, but don't want to waste my time and energy looking for something doesn't even exist.

J Scott · Answer

While you wouldn't expect it to be this way, I find "as-is" in the real estate world to be a very generic term (it can mean different things)...

In general, with an REO, "as-is" means two things:

1. There is no Sellers Disclosure that will be provided with the property;

2. No repairs will be made to the property by the Seller.

In every case that I'm aware of, #1 is always true.

But, I've seen situations where #2 is sometimes not the case.  While I've never asked for repairs, I know others who have (to pass FHA inspection) and on one occasion, the bank agreed to escrow $2500 for some repairs I planned to do.  While this is pretty uncommon, it does happen.

Btw, some people think "as-is" means that the Seller won't consider renegotiating the price after the contract is signed, but that's often not the case.  If you have a contingency period (due diligence), and you find and can prove that there are some non-obvious defects, the bank will often consider dropping the price to keep the deal alive.

Jon Holdman · Answer

"As is" doesn't mean "no negotiating for repairs".  It just means they won't fix anything.   And, they're not going to negotiate over obvious repairs.  You can still do an inspection, and if the inspector turfs up something that's not obvious, you can get the bank to adjust the price.

Jake Kucheck · Answer

The company line is "yes", but it never hurts to ask.  I've had buyers submit a RR for 15 different items, and get two of them fixed.  Then there's my RSM condo, where I asked for nothing to get fixed, but they gave me free paint and carpet anyway.  I'm guessing because the left hand and the right hand hadn't talked to each other in months.

So, your expectation should be that they will do NOTHING, but you should ask for it anyway, and every now and then you'll get a little bonus.  That's how I look at it anyway.

J Scott · Answer

As long as it's before the inspection contingency expires, you can back out...

Michael Stole · Answer

Thanks for the replies and explanations.

If I signed an inspection contingency on a property being sold "as is", and defects were found during inspection, could I use that back out? Or all I can do is to negotiate for a lower price?

Another question. Does "as is" mean different things to REO and HUD houses. I know HUD-owned houses are ALL sold as is, and they are extremely firm on that: absolutely no repair, no inspection contingency, no negotiation related to defects.

So it suggests to me that banks are like individual sellers, who are negotiable and flexable on the term of "as is", while HUD is rock-hard on that.

Jeffrey K. · Answer

Almost all NOO deals do not have a condition report in our state because the seller does not have to provide one because he/she has never lived there.

Scott Hubbard · Answer

Michael-

In practice, aren't all real estate sales "as-is"?

"As-Is" simply means there is no guarantee made by the seller.

In a traditional sale where the seller resides in the property, they will usually disclose what condition they know the property to be, but there are still no implicit guarantees made by the seller.

What does this disclosure do for the buyer? If the seller intentionally lied or held back material information as to condition and this has led to injury or loss, then the buyer might have recourse.  What recourse?  Well, thats for a judge or arbitrator to decide and intent can be dificult to prove. getting compensation can also be very difficult.

With a REO or short sale, the lender is simply disclosing that there no guarantees as to its condition which is for purposes of indemnification.  Since they have greater resources and more to lose, they are going to deflect any potential liabilities by putting the onus on the buyer to perform its due dilligence.

Caveat emptor (buyer beware) are disclosures  created to indemnify brokers, and agents, insurance companies, and lawyer's.

So, in essence, every real estate purchase and sale, no matter the transaction type, is really an "as-is' sale where there are literally and figuratively no guarantees.

At least with distressed sale you can receive a risk premium.

Mitch Kronowit · Answer

For the most part, yes, REO's are sold as is and in California, at least, the bank's agent will sign a disclosure stating the sellers have never lived in the house themselves, so they don't know anything about it's history/condition.

That being said, I have found some exceptions to the "as is" condition. The REO we purchased a couple of years ago had a leaking water heater and the seller replaced it. There were also several missing cover plates on the electrical receptacles and replacing them was our lender's condition prior to funding, so once again, the seller fixed them.

James Vermillion · Answer

I am guessing they probably forgot.  It really does not make much sense for a bank to agree to pay for any repairs.

Michael Stole · Answer

My agent told me he saw some REOs needing cosmetics work, but not listed as "as is". But he is not sure whether it is because the listing agent forgot to check the box, or the bank is indeed willing to pay for repair up to a certain budget.

Are all REOs sold as is?

Most Popular Reply