Can It Be Sold As-Is?
By Jim Palmer Jr.
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“I really had intended to sell this AS-IS!” said the disgruntled seller, as their broker explained the details of a long list of buyer-requested repair items. The seller had good reason to be upset, since this new revelation would severely impact his wallet. Even though he had expected to do a few minor repairs to meet the lender’s expectation of the property condition, this extensive written list was disturbing. The broker explained that without completion of specific repairs the underwriters would not approve the loan and therefore the deal would flub. Since they likely would face the same dilemma with any other buyer, they decided it was probably prudent to bite the bullet and do the repairs.
The process of escrow can be very tedious in some transactions, especially where a property may not qualify for standards of condition. For most government insured loans (FHA,VA), systems and structure must be intact and there can be no peeling paint or broken windows, etc. The only exception to these standards may be on a conventional loan when a buyer has a huge down payment and can show they are a good risk regardless of property condition or when buyers are using loans specifically designed for rehab projects. Since lenders are creating mortgage packages that can be sold later to investors, they have certain standards to meet to assure the loan is a good investment with the good collateral that is sufficient for the risk. What that means is, most subpar properties will never be sold in “AS-IS” condition unless it is a cash offer or rehab loan.
Even though a buyer may be okay with an inferior condition, the lender gets the chance to approve or disapprove of the property condition because they are the one taking the risk. The inspection/appraisal process feels much like double jeopardy to sellers even when it has been thoroughly explained to them by their broker.
Using the term “As-Is” on a purchase agreement can be fraught with risk for buyer and seller, unless care is taken to define exactly what that means. Doing that usually means one of the parties is willing to pay for an attorney to draft that explanation. When the seller says “As-Is”, does that mean he will cherry-pick the junk piles, leaving only real junk and debris, or does he really mean that he will walk away, leaving some desirable items the buyer spied when they first saw the property?
