So What Exactly Does it Mean to Buy a Property As Is?
“As is” is a real estate term that pop-ups frequently in the Los Angeles Market. Selling a property “as is” means that the seller makes no warranties about the condition of the property and will not fix anything or make repairs, nor will they lower the price or give credits because of the existence of problems or defects. In other words, what you see is what you get.
“As is” sales are common for foreclosures, short sales, trustee sale, probates, major fixers/teardowns, New construction (although they allow punchlists), and in strong seller’s markets- even some standard sales! Seasoned Real Estate investors are accustomed to AS IS Sales because they can understand the risks better working directly in the construction industry. For first time home buyers, you need to be extra careful!
Be extra careful with foreclosures or trustee sales, where the owner has never lived in the property. Since they have never occupied the property they are not required to make the standard seller disclosures.
Many sellers think that an “As Is” sale means that the buyer agrees to hold the seller harmless for all claims related to the sale of the property. Remember that old saying “Buyer Beware”?
This is not the case in California. State law (Cal. Civil Code 1102) mandates certain disclosures must be made with residential transactions, and that buyer and seller can’t waive these requirements.
An “As Is” clause should be considered putting the buyer on notice that no repairs or credits will be given.
“AS IS” still means that the seller must disclose all known material facts to the buyer.
What is a Material Fact?
Here is the test to determine if a fact is material or not is:
(A) Does the fact impact the desirability or market value of the property?
(B) If the buyer had known the fact, would they not have entered into the contract?
(C) Will the fact affect a buyer’s use and enjoyment of the property?
If yes to any of these questions, it is probably a material fact. In California, you do not need to disclose if someone died on the property or how they died, but it is usually a good practice to do so because the nosey neighbor will always tell the new owner about it so you might as well tell them first.
If a seller hides a material fact that is not visible or observable to the buyer, that is known to the seller, and that is discovered later, then the seller may be liable for negligent misrepresentation and failure to disclose and fraud in court. The statue of limitations is 2 years for these types of claims.
As is clause is not a way to avoid disclosure, but instead a way to shift responsibility for the condition of the property to the buyer.
When selling your property as is, it is highly recommended to either conduct presale inspections yourself to be provided to potential buyers, or allow buyers access to the property to inspect it themselves.
By providing buyers a presale inspection, or allowing them the right to inspect, you can dramatically lower your liability.
For buyers, If the seller demands no inspection contingency in offers, then as a buyer you have to bite the bullet and pay for inspection upfront before you are in escrow. It might really stink if you pay for the inspection and the seller chooses another offer, but its much better than the alternative, which is the seller accepts your offer and you find out there are huge problems and you might lose your earnest money deposit.