The as-is clause conveys significant benefits to the seller.
1) It theoretically prevents the purchaser from asking for the repair or replacement of any item that may come up in the inspection reports on the property. More about this in a moment, because this is not the entire story!
2) The clause helps to set the expectation level of the buyer, in regard to what the seller will or won’t do regarding items that come up in inspections. The as-is clause tells the buyer that the seller will theoretically not be contributing for items that come up in the inspection reports (other than those items required by California law, such as bracing the water heater, and providing smoke detectors).
3) It helps to minimize liability, because the buyer agreed to purchase the property in as-is condition.
4) An as-is clause often saves the seller thousands of dollars, due to no, or much reduced requests on the part of the buyer to the seller regarding defective items that appear in inspection reports.
However, there is a caveat regarding the as-is clause! Including the as-is clause in the real estate purchase agreement does not make the seller invulnerable – the seller can still be requested by the buyer to handle items that surface in the inspection reports.
The typical seller doesn’t obtain inspection reports before the property is listed, or early during its time on the market. (I always recommend that the seller does get these reports either before the sale, or very early in the sale.) Therefore, it is quite common that even in properties that appear flawless, significant surprises often surface in inspection reports.
As I write this, I am working with a client who owns an utterly immaculate home. However, I just returned to the office today, and to my and the seller’s great surprise, there is a $5,800 termite report! Even though this transaction does have an as-is clause, the buyer nevertheless requested that the seller fix these items, due to the significant surprises that came up in the inspection reports. The as-is clause reduces the probability of buyer requests on items already known about, but does not prevent the buyer from asking for items that come up as significant surprises later in the inspection reports.
Another example: I listed and sold a high quality home recently. The home looked utterly perfect. The buyer agreed to an as-is clause, but the termite report ended up having significant bad news in it. The buyer requested that the seller take care of half of the repair. As-is clauses are very helpful, but they do not make a seller invulnerable to significant surprises that surface in reports.
Hi again!
An important thing to think about when one receives a purchase proposal is: Should we sell the property in as-is condition, or leave the purchase agreement as written, without an as-is clause?
We are sending you this briefing to provide some information on this important topic, in preparation for the review of any offers that we receive on your property.
Question: "What does an ‘as-is’ clause mean?”
Answer:
The as-is clause is not automatically a part of the purchase agreement. In the standard purchase agreement, the automatically included clause pertaining to this matter states that the property is not in as-is condition, and commits the seller to several items.
If we leave the purchase agreement the way it is written, it does not contain an as-is clause.
Here the items that the seller is committing to, unless we insert an as-is clause:
-The roof must be free of leaks at the time of close.
-All built-in appliances must work at the time of close.
-All electrical, plumbing, heating, and cooling systems must work and be free of leaks.
-There must be no broken glass or cracked glass, including mirrors and shower enclosures.
-There must be no broken seals between double pane windows (this is a very common, and an expensive problem!).
-There must be no damaged window or door screens.
-The property must be maintained in at least as good a condition as it is today, both internally and externally, until close of escrow.
-The property must be delivered in a neat and clean condition, with all debris and all personal belongings removed.
On the other hand, inserting an as-is clause into the purchase agreement conveys significant benefits to the seller.
1) The as-is clause theoretically prevents the purchaser from asking for the repair or replacement of any item that may come up in the inspection reports on the property. More about this in a moment, because this is not the entire story!
2) The as-is clause helps to set the expectation level of the buyer, in regard to what the seller will or won’t do regarding items that come up in inspections. The as-is clause tells the buyer that the seller will theoretically not be contributing for items that come up in the inspection reports (other than those items required by California law, such as bracing the water heater, and providing smoke detectors).
3) The as-is clause helps to minimize liability, because the buyer has agreed to purchase the property in as-is condition.
4) An as-is clause often saves the seller thousands of dollars, due to much reduced requests on the part of the buyer pertaining to defective items that appear in inspection reports.
Caveats:
However, there
is a very important caveat regarding the as-is clause! Including the as-is
clause in the real estate purchase agreement does not make the seller
invulnerable – the seller can still be requested by the buyer to
handle items that surface in the inspection reports!
A lot of sellers don’t obtain inspection reports before the property is listed. Therefore, it is quite common that even in properties that appear flawless, significant surprises often surface in inspection reports.
I recently had a client who owned an utterly immaculate home. Yet to my and the seller’s surprise, there was $5,800 worth of repairs that surfaced on the buyer’s termite report!
Even though this transaction had an as-is clause, the buyer nevertheless requested that the seller fix these items, due to the significant surprises that came up in the inspection reports. The as-is clause reduces the probability of buyer requests on items already known about, but does not prevent the buyer from asking for items that come up as significant surprises later in the inspection reports.
Another example: I listed and sold a high quality home recently. The home looked utterly perfect. The buyer agreed to an as-is clause, but the termite report ended up having significant bad news in it. The buyer requested that the seller take care of half of the repair, which the seller ultimately agreed to do.
Summary:
As-is clauses are very helpful, but they do not make a seller invulnerable to significant surprises that surface in reports.
If the market will allow it, strongly consider including an as-is clause in our response to the buyer’s purchase agreement. But be aware, please, that if significant surprises surface during the inspection period you will be requested to assist the buyer in the repair of those structural issues, even if an as-is clause is present in the purchase agreement.
But even if you are requested to repair items that come up as surprises in inspection reports, you will almost always be better off with an as-is clause in the purchase agreement, because the buyer is somewhat less likely to ask for repairs, and the request is likely to be smaller than it otherwise would have been in the absence of an as is clause.