Make Sure You Know What an As Is Real Estate Contract Really Means
It is a very common misconception that when a seller uses a real estate contract designated “As Is, Where Is” that the buyer must accept whatever problem the property has at closing. The reality is that probably 90% of contracts that are written as “As Is” contracts do not close unless something has been changed or repaired before closing.
I think the “As Is” Clause was started by well-meaning agents. These agents didn’t want their sellers to be nickeled and dimed to death before closing about small items that needed repair. Sometimes these small items killed the deal if the seller wasn’t motivated or changed his mind about closing.
What has been happening for many years is that this clause is used by sellers to hide behind after a buyer closes and discovers a major problem with the property. Realtors® have tried to overcome this “after the fact” problem by having their sellers fill out lengthy disclosures. These disclosures should reveal all the deficiencies in the property. But what if there is no disclosure document and no specific written disclosure to an end buyer? The property is later found to have a major issue, what then?
The “As Is Clause” is designed as a catchall to cover items that would be insignificant as part of the decision process of the buyer. The place where insignificant departs from major deficiency is sometimes in the eyes or the beholder. This issue could have been intentionally hidden by the seller. The “As Is” Clause doesn’t cover major undisclosed deficiencies. It can be grounds for civil or even criminal action.
In a case where I was an Expert Witness the buyer of a waterfront mansion had an inspection report including a WDO (Wood Destroying Organisms) Report. The WDO Report showed no wood destroying insects present. Within weeks after the closing tons of termite droppings started coming out of the walls and ceilings. The buyer went back to the seller. The seller’s attorney screamed “As Is” on the contract and to go away saying they had no case.
It turned out that the Seller intentionally did just enough in repairs before the sale to carefully mask the extensive damage and live infestation that existed. He didn’t even tent the house to kill the existing infestation! The Buyer’s attorney felt otherwise. To make a long story short, the judge decided the buyer got to keep the property. The buyer got his money back and even additional damages. Just because a Realtor®, investor or attorney tells you something, it does not mean it is true. It is more likely that it is simply in their best interest. At times maybe, just maybe it isn’t even the truth. Don’t assume anything.
In summary, the term “Material Defect” trumps the word “As Is” in a real estate contract. What is a material defect is, well, that’s in the eyes of the beholder. It may have to be determined by a court of law. Be careful out there!
To your limitless success,
Dave Dinkel
Real Estate Mentor Program Founder
