Given the large number of foreclosures and short sales in the Phoenix real estate market, the term “As Is” typically comes up with respect to the condition and acceptance of the condition of the property.
There can be confusion as to what this actual phrase in a real estate purchase contract in Arizona generally means and doesn’t mean. As such, I wanted to communicate that here.
Where might you see the “As Is” clause or statement?
For Phoenix foreclosures and short sales, when submitting an offer, the Listing Agent will often request that the Buyer submit an “As Is Addendum.” The “As Is Addendum” is a single pager and calls out basic descriptions and legal stances for how the Seller is selling the property. In replacement of or in addition to, Sellers (and really more the lenders in this case) will send out an additional addenda reflecting the nature of the sale and condition of the property as “As Is.” The addendum could be as many as 15 pages with numerous clauses and paragraphs that further spell out the Seller’s limitations in knowledge about the property and the Seller’s intent not to perform any repairs and work.
What does “As Is” mean?
The As Is Addendum essentially spells out the following:
“Seller and Buyer agree that the Premises is being sold in its existing condition (“AS IS”) and Seller makes no warranty to Buyer, either express or implied, as to the (1) condition of the Premises, including, but not limited to, Seller’s Warranties in Lines 163-166 of Section 5a, which Buyer hereby waives, (2) zoning of the Premises; or (3) Premises’ fitness for any particular use or purpose. However, Seller warrants and shall maintain and repair the Premises so that, pursuant to lines 167-168, at the earlier of possession or COE, the Premises, including all additional existing personal property included in the sale, will be in substantially the same condition as on the date of Contract acceptance and all personal property not included in the sale and all debris will be removed from the Premises.”
Now, by this clause and in more extensive contract language we see in some of the addendums, we know that the Seller is indicating that the property is being sold in its current state of condition. The Seller is also making no warranties to the Buyer regarding the condition of the home.
With regard to the single page “As Is Addendum,” it spells out additional legal and helpful reminders to the Buyer of the importance of inspections and due diligence. As well, it provides a reminder that the Realtor is not qualified or licensed to perform due diligence.
The more extensive “As Is” addendums required by lenders tend to work to try to absolve the Seller from any and all liability that may arise from the property in the future. The lenders want to completely wash their hands of the home now and in the future permanently. So, a buyer has to be careful in what they sign here though the deal often won’t close if the Buyer does not sign.
What “As Is” doesn’t mean
For buyers considering the purchase of a foreclosure or short sale property, whether it be a Chandler home, a Scottsdale condo, or other property, Buyers have to be careful and resolute that the inspection or due diligence period not be truncated or waived as part of this process. In most instances, the Buyer won’t see anything where they are asked to waive their inspections.
I would highly recommend a home buyer walk away from a property where they are not able to perform appropriate and thorough inspections on a property.
At times, a Seller may try to get the Buyer earnest deposit made non-refundable at the outset or at the end of the due diligence period. Though once in a while making the earnest money “hard” during the process is necessary, I don’t recommend doing this until the inspection period has been concluded completely. This includes the normal Buyer Inspection Notice Seller Response process. This way, if there is a major issue with the property that has been identified, the Buyer has some recourse to cancel without penalty other than the cost of inspections.
The As Is Addendum and other addenda should not absolve the Seller of the requirement to disclose any and all “known material latent defects to Buyer.” In other words, if the Seller is aware of a significant issue on the property, they are required to disclose that fact. Anything to the contrary is something to watch out for though additional addenda do try to absolve the Seller from any liability that might arise later.
Note: Especially with regard to short sales, often the Seller (who is the owner in this case and not the lender) will indicate that a Seller Property Disclosure Statement and CLUE Report will not be provided. There is no reason for a homeowner not to provide this documention given the owner is familiar with all or at least partial aspects of the property. Though the As Is Addendum doesn’t ask the Buyer to waive these documents, additional requested language in either the contract or additional addendum may try to do just that. A lender will claim that because they obtained the property through foreclosure, they have no knowledge of any aspects of the property and will not communicate anything as such. This is more palatable (but still not a justification) than the short seller who simply doesn’t want to provide any information on the property regardless of the reason.
“As Is” doesn’t mean you have to take the property “As Is” in all cases
One last item that comes about more from practice in the business. Just because the addendum indicates that the lender will not perform any repairs on the property doesn’t mean that a Buyer shouldn’t ask. In fact, I highly recommend that Buyers put forth their Buyer Inspection Notice to try to get repairs done on a property regardless of what the agreement says. First, any issues identified through the inspection period may be serious enough that the Seller is willing to either repair the property or compensate the Buyer through a credit. Second, the Seller is interested in closing the transaction as much as the Buyer is. As such, the Seller may already be allotting for some level of repairs to the property depending on the nature of the issues.
So, my tip for homebuyers here is that you should always ask for repairs of any significant items and see what comes of it. If you don’t ask, you won’t know what the lender or lenders are willing to do and you may leave money on the table.
Summary
The meaning of “As Is” in a real estate agreement varies depending on the document talking to it. Generally, it is a statement that the Seller is selling the property in its current condition with no implied warranties of any kind. More extensively, it could also mean that no repairs will be made to the property, the Buyer is asked to waive additional legal rights should a later issue arise, and other smaller but just as significant legal clauses.
It is important that no matter what the “As Is” language reads, that the Buyer not give up their inspection period and that the buyer clearly understand the implications of any “As Is” terminology in the agreement. The best approach when dealing with an “As Is” situation is simply reading in detail the full documentation provided and understanding the ramifications to you as a home buyer.
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