"AS IS" offer but include inspection contingency
26 Replies
Ron Mussatto
posted over 1 year ago
Of course an AS IS offer is attractive to seller and increases my opportunity for more deals. But how do I present an AS IS and include a inspection contingency? Secondly, when I have the contract, how can I come back to buyer after inspection if I found roof needs replacing and ask for some dollars off for a new roof?
Marc Winter
Real Estate Broker from Scranton, PA
replied over 1 year ago
You can't. AS IS means just that. You can have an inspection, but if you try to hit up the seller for reduction with an "AS IS' clause in the contract, be prepared to walk away from your earnest money. Your 'newbie' may be showing.
Mike Cumbie
(Moderator) -
REALTOR® from Brockport, New York
replied over 1 year ago
It's not really an "AS IS" if you are coming back and asking for more money off based on an inspection.
Brian Garrett
Real Estate Investor from Palm Beach County, FL
replied over 1 year ago
I have to disagree with the above posters as this seems to be market specific.
Here in my area it's normal and common for "AS IS" contracts to have inspection contingencies.
The inspection reports are also typically used to further negotiate the purchase price.
Andrew B.
from Rockaway, New Jersey
replied over 1 year ago
In my area, I always believed as-is meant you weren’t asking for any reductions from inspections, and left the inspection clause in tact. The difference may just be how you word it in the contract. Ask your realtor how he suggests handling it.
Ron Mussatto
replied over 1 year ago
It does seem illogical but I thought I heard this on BP podcasts.
Is it better to not offer as is and get an inspection? At that point I feel like the only value of the inspection is if my contractor and I overlooked something before the offer. But we should be able to see all the big items anyway.
Christopher Phillips
Real Estate Agent from Garden City, New York
replied over 1 year ago
Buyers don’t offer “as-is,” the listing is “as-is” because the owner doesn’t want to fix anything.
A walkthrough with a contractor isn’t the same thing as an inspection. A contractor just tells you how much it will cost to replace things. An inspector is there to report on hidden defects like faulty wiring and bad plumbing.
As a buyer, you can waive the inspection contingency if you plan on doing a total gut of the house. If you don’t, waiving the inspection gives you no recourse if hidden problem show up later, because your contractor isn’t acting as a licensed and insured inspector during their walkthrough, they are there to give your work estimates and nothing more.
Brian Ellis
Rental Property Investor from South shore, MA
replied over 1 year ago
Originally posted by @Christopher Phillips :
@Ron Mussatto
Buyers don’t offer “as-is,” the listing is “as-is” because the owner doesn’t want to fix anything.
A walkthrough with a contractor isn’t the same thing as an inspection. A contractor just tells you how much it will cost to replace things. An inspector is there to report on hidden defects like faulty wiring and bad plumbing.
As a buyer, you can waive the inspection contingency if you plan on doing a total gut of the house. If you don’t, waiving the inspection gives you no recourse if hidden problem show up later, because your contractor isn’t acting as a licensed and insured inspector during their walkthrough, they are there to give your work estimates and nothing more.
Do you even have any recourse if hidden problems show up later? To me, inspections are pointless. The only good they do is educate buyers (if you are lucky to get a good one), or to be used as a negotiation tool. You can have any property inspected if you choose. But my guess is it will turn off the seller when they have it listed As-Is.
Mike McCarthy
Investor from Philadelphia, Pennsylvania
replied over 1 year ago
Purchase contracts around here are all legally ‘as-is’. Legally, you’re buying the house as it is with no post-closing recourse (in most cases).
The listing/marketing As-is is really just saying that the house needs work and the seller doesn’t want to deal with it.
Therefore, even with an as-is listing, you often still see an inspection clause. I look at it as I’ll buy the house with most issues, but I’ll have someone look at the roof or other items I can’t see with just a walkthrough.
Andrew Syrios
(Moderator) -
Residential Real Estate Investor from Kansas City, MO
replied over 1 year ago
I see (and use) inspection contingencies with "as-is" properties. The main thing about "as-is" deals, at least as far as I'm concerned, is that the seller won't do any repairs. But that doesn't mean that I will accept a deal that has a broken sewer line for the same price. Now usually with "as-is" deals, the seller won't reduce the price, but if it's that the case, then I might back out and would want my earnest money back. Remember, everything is negotiable.
Bob Prisco
Specialist from Cleveland, OH
replied over 1 year ago
@Ron Mussatto then it is NOT " AS IS " , Buyer should be able to tell what is needed on HIS inspection, If not he should have brought someone with him/ her that knows what they are doing
Good luck
Wayne Brooks
Real Estate Professional from West Palm Beach, Florida
replied over 1 year ago
Wow, lots of varying and in my mind, wrong interpretations here.
Given, some states have some different wording about inspection contingencies.
As Is only means that a seller is Not agreeing UPFRONT to do any repairs on items found needing to be repaired, typically those required to secure fha or conventional financing.....that is All it means.
It does Not mean that a buyer can’t have an inspection and either walk away or ask for a price reduction as a result of items found in the inspection.
As Is and an Inspection Contingency are not related to each other and are Not mutually exclusive (in the vast majority of markets).
Frank Wong
Real Estate Broker from SF Bay Area (East Bay)
replied over 1 year ago
This is how I view it for "AS-IS" at least in CA. You offered to buy the property "AS-IS" with an inspection contingency.
1. The seller has an inspection reports termite and general inspection. You review everything prior to making an offer. For the most part, you know where the house stands. So you accept the house in its AS-IS condition and act in good faith not to renegotiate anything during your inspection period. You can reinspect the house and if nothing new or major turns up from the known facts then you proceed with the purchase and stick to your word.
2. The seller has no reports. You initially submit an offer "AS-IS" with your inspection contingency. During the inspection, you find electrical termite or foundation issues. These are all unknown items discovered. You can cancel the deal or go back to the seller and ask for concessions. I see no issues if this was the situation. Seller at this point can accept or negotiate the concessions or ask you to remove your contingency and move forward or the deal can be cancelled.
It all depends on your intention and if you are acting in good faith. I recently did a deal in Oakland. Seller provided home and termite report. We got a foundation inspection from an engineer. During the inspection, we found issues with the foundation. We went back to the seller with the report and I negotiated $25k off the price. The seller was understanding. We acted in good faith. I think that is what it really comes down to. How are your intentions? Are you being shady buyer saying As-Is getting the deal knowing you plan to negotiate from the beginning?
In both cases in CA if you have your contingency you can cancel and your deposit returned. You are 100% within your right.
Ron Mussatto
replied over 1 year ago
I appreciate the feedback everybody
Is it indisputable that regardless if it is “as is” , if repairs are too much, the only way to can get out with Ernest money is to have an inspection contingency ?
I am in Illinois by the way.
@Wayne Brooks undefined
Christopher Phillips
Real Estate Agent from Garden City, New York
replied over 1 year ago
If you submit an offer waiving the inspection contingency then you lose that "out" if you find problems later on. And yes, you would lose your earnest money in that case.
If you are getting some form of financing, they will require an inspection. So, this would really be with a cash deal.
Mike Cumbie
(Moderator) -
REALTOR® from Brockport, New York
replied over 1 year ago
I will agree with @Wayne Brooks and change my wording, at least in regards to where I do business.
1) All real estate in NYS is AS IS/ WHEREIS. so after closing everything is AS IS. Saying it in advance is already in the standard contract.
2) If someone says "No inspection contingency" (or does not have one checked). Then we often refer to it "AS IS, no inspection".
3) If someone has an inspection checked (they can get their EMD back if they don't like it) Then it is just a contract subject to an additional contingency.
4) If an agent submits a contract with an inspection contingency and says things like, "well yeah they want an inspection but they are not going to going after small stuff". or "They are doing an inspection but his dad's a contractor so they are not too worried". We put that in the pile with "inspection contingencies".
Per the OP's wording they are trying to gather all the benefits of the seller "believing" they are taking it like it is (bypassing other, possibly higher offers) and then come around once they have pushed all other offers out of the way and go for a price reduction. (I would almost say "bad faith"). Of course RE is very regional and is practiced differently everywhere.
Just my 2 cents
Dan Maciejewski
Realtor from PInellas County Largo, FL
replied over 1 year ago
I don't see where you're from, so can't answer specifically. As you can see from everyone's answers, there are many differences as to how this is handled in different markets.
It helps if you've seen your market's "standard" contract, and know it like it's yours. Or have your own if you're not using a agent. A good agent can explain your market and how this works to you.
In my market, the majority of sales are written on our "As-Is" contract. It has a pre-written inspection period (time-frames are negotiable) during which the buyer can cancel for any reason and get their EMD back. Since negotiation is the name of the game, if hidden problems are found, the buyer can always ask for a discount or for some fixes. The seller can refuse, of course.
This is the fun part, though -- if the problems are something that can "materially affect the value" of the property, then the seller is legally required to disclose them to the next buyer if they re-list the house. And, of course, since they can affect the value, take less money.
So the seller is in a position of re-negotiating for a lower price, fixing the issue (usually the cheapest option), or re-selling for an undetermined price in the future. A bird in the hand is worth two in the bush, as it were.
My area was hit very hard during the recession, so we had a ton of foreclosures. Banks used the As-Is contracts because they weren't fixing anything, and could afford to sit on properties for years, And they often did. So unless a seller has the fortitude of a bank, everything's going to be negotiable. Banks didn't and don't have to sell -- most sellers do.
Dan Maciejewski
Realtor from PInellas County Largo, FL
replied over 1 year ago
Originally posted by @Mike Cumbie :
I will agree with @Wayne Brooks and change my wording, at least in regards to where I do business.
1) All real estate in NYS is AS IS/ WHEREIS. so after closing everything is AS IS. Saying it in advance is already in the standard contract.
2) If someone says "No inspection contingency" (or does not have one checked). Then we often refer to it "AS IS, no inspection".
3) If someone has an inspection checked (they can get their EMD back if they don't like it) Then it is just a contract subject to an additional contingency.
4) If an agent submits a contract with an inspection contingency and says things like, "well yeah they want an inspection but they are not going to going after small stuff". or "They are doing an inspection but his dad's a contractor so they are not too worried". We put that in the pile with "inspection contingencies".
Per the OP's wording they are trying to gather all the benefits of the seller "believing" they are taking it like it is (bypassing other, possibly higher offers) and then come around once they have pushed all other offers out of the way and go for a price reduction. (I would almost say "bad faith"). Of course RE is very regional and is practiced differently everywhere.
Just my 2 cents
Here, we actually have 2 FAR/BAR contracts. An "As-Is" contract with an inspection period during which the buyer can walk away for any reason, and a "Standard contract that provides for pre-negotiated repair costs and an actual definition of what major systems are and what constitutes a "repair" and "in working order."
Our As-Is contract is actually way better for a buyer and can screw a seller. But the agents don't explain things to the sellers, and the sellers balk at up-front repair commitments, thinking that the buyers will just run up repair costs to hit the limit. The benefit of our Standard contract is that the buyer can not just walk away during the inspection period and take their EMD with them, leaving the seller high and dry. And they don't get to ask for anything they want as to repairs.
Agents don't explain what inspections are for to their buyers, either, so we get goofy repair requests all the time for cosmetic things that they saw at the first showing.
Ramsin Jacob
Realtor from San Jose, CA
replied over 1 year ago
@Ron Mussatto Solid question, there's a lot of variance in answers here, majority of them are incorrect. I can assure you that, as I do lots of deals that are fixer properties being purchased in "AS-IS" conditions. For your reference, I will point out the correct answers here:
@Brian Garrett - Correct answer.
@Christopher Phillips - Correct but not fully explained.
@Mike McCarthy - Correct.
@Andrew Syrios - Nailed it, correct.
@Wayne Brooks - Correct.
@Frank Wong - Correct.
@Ron Mussatto - When a buyer has "AS-IS" on the contract, that is basically letting the seller know that they will not be obligated to actually fix anything themselves. If you submit a non-contingent offer with an "AS-IS" clause, you have no "out" in the deal regardless of what you find. You will lose your EMD if you chose to back out. Now, if you had a property contingency on your "AS-IS" offer and after a licensed inspector discovered something that the seller did not disclose or was unaware of, you have two options: 1) You can back out and recoup your EMD or 2) You can let the seller know that due to the findings, it will cost you X amount of dollars, which were not apart of your original numbers, therefore, since it is an
"AS-IS" contract, the seller would need to accept a decreased price from the original purchase price on the contract. If the seller does not wish to decrease, then you back out from the deal with your EMD, if you believe it is a significant discovery and cost to the rehab. Like I said, I do these deals all the time in the Bay Area. Last summer, a client was under contract for a SFR fixer in Downtown San Jose, we had a "AS-IS" offer on the table with a property contingency, after inspections, my client told me he is not going to purchase the house under the current offer price. So I ended up negotiating $110,000 off from the original contract price and we had a done deal. My recommendation is to always have a property contingency, unless it is a complete re-build/gut rehab and you are basically buying for land value.
Good luck to you and your business endeavors.
Wayne Brooks
Real Estate Professional from West Palm Beach, Florida
replied over 1 year ago
@Account Closed Yes, you Can come back to the seller to renegotiate.....they can agree, or not.
James De Stefano
Real Estate Agent from Houston, TX
replied over 1 year ago
Great discussion, very helpful. I think the overall theme is, "As-is" can be a great opportunity for buyers. Just don't be weasely or greedy after an inspection.
Create a Win Win scenario whenever possible.
Ramsin Jacob
Realtor from San Jose, CA
replied over 1 year ago
Incorrect. You can 100% come back after an inspection and re-negotiate the purchase price. That is the whole point of having a property contingency in place with an offer.
If a investor is under contract for a home at $600k, originally calculated his rehab to be $100k with an ARV of $1m; then later finds out that the foundation is destroyed and the house will need to be lifted up to replace the foundation, that will surely cost over $75k depending upon the total sqft of the home. Therefore, will hinder the investors originally calculated ROI and the property may not look so good after all. At that point, Melanie, you are suggesting that the investor still take the property at the original contract price? Definitely should not. Any smart investor will either re-negotiate the purchase price or walk away from the deal unharmed. Again, that's the whole point of having a property contingency. I know this from first hand experience. Good luck.
Originally posted by @Account Closed :
No, you can not come back to buyer after inspection. But still it is beneficial for you to conduct home inspection. So, you will come to know all the hidden damages in home and you can plan you financial thing accordingly.
Michael Strachan
Specialist from Santa Clara county, CA
replied over 1 year ago
This may be a market specific issue, but in California the boiler plate forms (CAR Residential Purchase Agreement paragraph 11) will have an "as-is" clause built right in to the contract. "Unless otherwise agreed in writing: (i) the Property is sold (a) AS-IS in its present physical condition as of the date of acceptance and (b) subject to buyers investigation rights". 'Subject to buyer's investigation rights' is the key phrase in this case as those terms may be subject to further specification in the contract.
The way I explain this to my clients is that all "as-is" means is that the seller is not obligated to make any changes to the property, however it does not mean that we can't ask them to. Of course, the seller has the right to choose whether or not they would like to accept the offer based on the terms specified in the contract. However, if you have an inspection contingency in place, and inspections reveal a material fact that was previously unknown to the buyer, they have every right to issue a request for repair. At that point, the seller could choose to simply reject the request, in which case the buyer may or may not choose to exercise their right of cancellation of the agreement or simply proceed as previously agreed and eventually remove their contingency. The seller in this case is under no obligation to complete the work but they may opt to do so if it means preventing the transaction from falling through or even simply in a show of good faith as some sellers may very well choose to do, particularly if they themselves were unaware of the issue and understand that it affects the desirability of the property. Alternatively, the buyer may simply choose to ask for a price reduction in light of the discovery. In either case, so long as the contingency is in place, they have every right to attempt to renegotiate the terms of the agreement. I hope this helped!
Brian Van Pelt
Realtor from Owings Mills, MD
replied over 1 year ago
It depends on the state you are in and how the contract is written:
. Most states require you to disclose any known defects with a property via a Disclosure/Disclaimer
. "As Is" in most states means "The current condition"
. Even if the property is sold subject to an "As is" addendum a Disclosure/Disclaimer must be filled out by Seller
Depending on how the contract is written the Buyer may or may not lose some or all of their deposit.
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