Tips for Buying a Home "As-Is"
In today's troubled housing market, many distressed homeowners and banks are listing properties for sale in "as is" condition; that is, in their existing state, with no promise of potential repairs. In a traditional sale, owners are often required to provide seller disclosure statements, and any unsatisfactory results of buyer's inspections and investigations are often used to negotiate additional repairs or price adjustments.
The common misconception is that any home that is being sold "as-is" will be in shambles, but the truth is, there are some suprisingly decent deals available in the "as-is" arena. Informed buyers, who do their research and understand what they are getting into, can pick up some pretty good bargains; but again, we stress that being an aware, informed and educated buyer is a necessity.
What does it mean when a seller states a home will be sold "as-is"? As mentioned previously, many people assume "as is" means a home is in serious disrepair, but that's not necessarily true. Simply put, the seller is providing notification upfront that they will make no repairs to the property as a condition of sale. A house advertised "as is" may range from near-mint condition to a lemon, depending on each sellers unique situation.
Why might a house be sold "as-is"? The most common reason in the current housing market is the home is a foreclosure, or a "bank REO"; that is, it has been repossessed by the lender and is "Real Estate Owned". Foreclosures are almost always sold "as is", and due to the fact that the lender has never occupied the actual house, they are often not aware of the intricacies that may typically be required on a seller's disclosure (for example plumbing issues or leaking roofs). Relatives may sell properties they have inherited in "estate condition" (translation: "as is") because they are in a hurry to settle an estate and don't want to spend money on a house they have no financial or emotional interest in. Finally, a seller simply may not have the time, money or desire to deal with making repairs, and may be willing to take a significant cut in proceeds to avoid the extra effort.
Is a foreclosure always an "as is" deal? Or is it possible to negotiate with the bank for repairs or improvements? As a buyer you can always try to negotiate, but conditions of the home foreclosures market are more likely to favor the lender, who will in most cases be able to sell the property "as is".
You should always plan to conduct a thorough professional home inspection with ANY home purchase, but this is particularly important with an "as-is" home buying. Here are some basic tips and things to think about if you find yourself considering this type of home investment:
- Offer less than the asking price: LOWBALL! Well, duh, that seems pretty obvious in this market, doesn't it? But how much below? First, you need to establish the true "market price". A realtor can determine this based on recent similar sales in the neighborhood, and there are a number of websites out there that also provide estimates or "comparables" as they are termed in industry, although we recommend using those with caution as you can't be certain the data utilized is representative or necessarily accurate. Once you obtain this data, use the lower end of the spectrum and subtract from it the estimated costs of potential repairs necessary for the property. Be sure to err on the conservative side in your estimates for repairs. Even then, knock another 5-10% or so off your offer price; it's a buyer's market, and they can only say no... or counter....or accept!!
- Have the property inspected thoroughly by a licensed, experienced professional inspector. Try to always choose a home inspector who is a member of the American Society of Home Inspectors (ASHI). This organization has the toughest experience and membership standards; you can find qualified inspectors at their website, ASHI.org. Prospective buyers of "as is" homes should condition their purchase offers on a satisfactory professional inspection report to be obtained by the buyer after the seller accepts the purchase offer. If the seller refuses to allow an inspection or this contingency as part of the purchase contract, RUN, don't walk...
- Are you really prepared for a potential major renovation job? Think long and hard about this before committing to this type of purchase. Consider the physical, mental and financial aspects of the project you may be taking on before finalizing your purchase commitment.
- Evaluate financing and insurance needs upfront given that the property may require unique financing or insurance programs designed for "renovation" properties. You don't want to find out you can't insure or finance the property after your earnest money goes hard...
In Summary? When a home is marketed "as is," it gives the home buyer the advantage. The words "as is" have a negative connotation and signal "fixer-upper" to many buyers. Use this to your advantage when negotiating with the seller, and with the proper research and items discussed in this article (and a little luck) you could come out with an excellent deal.
