Question: What does it mean to buy a home as-is and are there ways to mitigate the buyer’s risks?
Answer: Occasionally sellers offer homes for sale “as-is” and it presents a good opportunity for buyers to purchase below market and earn some sweat equity. These homes tend to be run down, require significant repairs and most owners don’t want to deal with anything other than signing the paperwork to transfer title. Homes may also be offered as-is when the seller doesn’t know anything about the property (e.g. acquired through inheritance).
Last week, I explained that Virginia is a “Buyer Beware” state (Caveat Emptor), which means that sellers do not have to disclose any problems to buyers and the burden of discovery falls strictly on the buyer. As such, selling a property as-is isn’t too different than a regular sale of property in Virginia, but there are a few negotiable differences and while a property can be marketed as-is, it doesn’t mean anything until these changes are explicitly agreed to:
- There is no requirement to clean or remove debris. The standard is for the property to be free of trash/debris and broom clean.
- The seller is not responsible for addressing any wood destroying insect/termite issues. The standard agreement requires the seller to pay for this.
- The seller is not required to fix any Homeowners Association violations on the physical condition of the property.
- The seller is not responsible for providing working smoke detectors.
- The seller is not responsible for compliance with notices of violation from local authorities
You should be able to assess the amount of trash/debris and existence of working smoke detectors pretty easily. You can contact Arlington County about any outstanding violations. If you’re buying into an Association, the delivery of a resale package (documents like by-laws and budget) is a non-negotiable requirement and will include any outstanding violations. Wood destroying insect/termite tests are cheap and easy and can be done in conjunction with a pre-inspection or pass/fail inspection (see Mitigating Risks To A Homeowner).
What About Home Inspections?
The list above represents what the Northern VA contract says about as-is sales, but in reality, what most sellers mean when they offer a property as-is is that they intend to deliver the property in its current condition and aren’t interested in fixing anything. I always recommend my clients include a full home inspection contingency in their offer, which allows you to negotiate fixes or seller credits based on the findings of the property’s condition, but don’t expect a seller marketing a home as-is to agree to a full inspection contingency. While investors (teardowns and flips) don’t mind, it puts homeowners in an uncomfortable position.
Mitigating Risks To A Homeowner
- Select a Contractor: If you’re planning a major renovation, I strongly recommend selecting your contractor ahead of time and asking them to do a walk-thru of the property with you before you make an offer.
- Pre-Inspection: You can order a full home inspection prior to making an offer. The downside is that you’re paying for an inspection (usually $500-$600 for a single family home) before you’ve signed a contract, but the benefit of being fully informed on the condition of the home is worth it. Make sure you get permission from the seller before ordering a pre-inspection. Pre-inspections are popular in Washington DC right now because of how competitive the market is for buyers, who are often forced to remove the inspection contingency for their offer to be considered.
- Pass/Fail Inspection: It’s possible to amend the standard inspection addendum to create a pass/fail option by eliminating the right to negotiate based on the property condition. The result is you can inspect the property and make a binary decision – void the contract or move forward with the purchase. This provides you the opportunity to inspect for major problems (e.g foundation issues) and walk away if necessary.
- Talk To Neighbors: Introduce yourself to a few neighbors and ask them about the home you’re considering purchasing. Neighbors are often aware of major issues with nearby homes or whether the previous owner took care of the property, so don’t be shy.
I’d love to hear from readers about their experiences buying as-is properties and any creative ways you used to mitigate the risks.