How To Protect Yourself When Buying a House As-Is
What Does It Mean to Buy a House As- Is?
In Florida, buying a house as-is is commonplace. The most widely used real estate contract is the "AS IS" Residential Contract For Sale And Purchase. In fact, many listing agents will advise their sellers to reject offers unless they are submitted on the as-is contact. This does not necessarily mean that the property is in poor condition; it simply means that the seller is not obligated by the contract to make or pay for repairs. A Florida as-is real estate transaction still requires the seller to disclose material defects, grants the buyer an inspection period, and allows for negotiating repairs.
The major difference between the as-is contract and the standard Residential Contract For Sale And Purchase is the seller's obligation to deliver the property in "working condition," which is defined as "operating in the manner in which the item was designated to operate." The following items must be in working condition when using a standard contract:
- The roof, ceiling, fascia, soffits, walls, windows, and foundation must be free of leaks
- Pool and pool equipment
- Non-leased major appliances
- Heating and cooling
- Sprinkler system
- Plumbing systems
- Seawalls, dockage, and boat lifts
There is a clause in the standard contract that specifies the seller will be responsible for paying a predetermined amount toward repairs, permits, and wood-destroying organism treatment. If this section is left blank, the seller will be required to pay up to 1.5% of the purchase price toward repairs, up to 1.5% of the purchase price toward wood destroying organism treatment, and up to 1.5% of the purchase price toward permit issues. On the other hand, the seller is not required to repair "Cosmetic Conditions," which are defined as "aesthetic imperfections that do not affect the working condition of the item."
While the as-is contract does not include a clause that obligates the seller to make or pay for repairs, that does not mean that the buyer will be on the hook to purchase a money pit. The buyer can get an inspection and negotiate repairs with the seller (more on this below). Once the buyer and seller come to terms with repair negotiations, the buyer's agent will draft an addendum with the specifics for both parties to sign. The addendum is a legally binding document that will afford the buyer the needed protection to move forward with the contract with peace of mind that he or she will not be stuck with a dilapidated property. If the buyer and seller can't come to terms during repair negotiations, the buyer is free to cancel the contract as long as written notice to cancel is delivered to the listing agent before the inspection period expires.
What is the Seller Required to Disclose When Selling a House As-Is?
Even if a home is being purchased as-is, the seller is required to disclose any known issues that may materially affect the value of the property. While a Seller's Disclosure is not required by law, it is a good idea for the seller to prepare the disclosure and have it signed by the buyer to help prevent future litigation. If the disclosure is not in writing, it will be difficult for the seller to prove that the buyer was informed of the defect. If the property has known defects that were not disclosed, the buyer could sue for failure to disclose.
A Seller’s Disclosure should include systematic, structural, electrical, plumbing, water/flooding, building code violations, boundary disputes, and governmental and environmental issues. It is especially important for the seller to cover defects that can't be seen by the naked eye. However, if the seller never lived in the home or owned it for a short time, he or she may not be aware of material defects. The seller can't disclose things they are unaware of, so a buyer should proceed with caution when purchasing a home from a seller that recently acquired the property or used it as an investment property. Tenants don't always contact the landlord when problems arise.
In addition to material defects and building code violations, the seller must provide a Homeowners Association or Condo Association Disclosure when applicable. This disclosure will list association fees and assessments. Furthermore, the buyer can cancel the contract without risking their earnest money deposit if the seller doesn't provide a copy of the association's governing documents.
Should You Get a Home Inspection When Buying a House As-Is?
You should always get a home inspection! When buying a house as-is, you will have the right to inspect for a time period that is specified in the contract. Inspection periods vary typically from 5 to 15 days. In a hot seller's market, buyers will often shorten their inspection period to make their offer more desirable in a multiple offer situation. Never get the home inspected before you have an executed contract. If the seller accepts another offer, you will have wasted your money, and inspections can be expensive. However, you should give yourself as much time as possible to inspect the property. Remember that you can cancel the contract for any reason without forfeiting your earnest money deposit during the inspection period.
It is important to schedule your inspection as soon as you have an executed contract so that you have time to get contractors' estimates if you discover that repairs are needed. Once you know what repairs are needed and how much they will cost, you can negotiate with the seller to either make the repairs or cover the costs through a credit at closing. We find that requesting a credit from the seller at closing provides for a smoother transaction so that disputes over workmanship don't occur. Just make sure that you have realistic estimates from licensed contractors before negotiating seller credits. You will also want to ensure that your lender (especially if you are applying for an FHA Loan) and home insurance company will allow the repairs to be conducted post-closing. If you get the repairs done yourself, never start work until after closing. If the deal falls through due to an unforeseen event, you will probably lose any money you have spent on the home.
Now let's discuss the different types of inspections that you should consider when purchasing a home as-is. Your home insurance company will probably require a four-point inspection to determine their risk before binding your policy. The four-point inspection will cover the roof, electrical, plumbing, and HVAC. We recommend getting a comprehensive home inspection, which will assess hundreds of items throughout the house, from the foundation to the roof, inside and out. If the inspector suspects that the home has been subject to water damage, he or she may recommend a mold inspection. Mold inspections can be costly, but if the inspector suggests one, it may be worth the expense as mold can cause serious health problems for your family. In Florida, wind mitigation inspections are also popular to determine how well the home will hold up in a hurricane. If you have approved roof-to-wall ties and/or impact windows and doors, you may be eligible for an insurance discount. A wood destroying organism inspection is also important in Florida to determine if there are any past or present infestations that can wreak havoc on a home's structural integrity. The bottom line is that requesting the proper inspection(s) in a timely manner is key to protecting yourself when purchasing a home as-is.
Should You Get a Home Warranty When Purchasing a House As-Is?
A home warranty will provide additional peace of mind when buying a house as-is. A home warranty is almost always a good idea when buying a resale property. You can request a home warranty from the seller when submitting your offer. If the seller agrees, the cost of the home warranty will come out of the seller's proceeds at closing. Even if the seller declines your request to cover the warranty, you can purchase the warranty yourself at closing. Plans that cover systems and appliances generally range from $500 to $750, but prices range based on company pricing, square footage, and location.
Defects discovered in the home inspection are considered pre-existing conditions. Most home warranty companies don't cover pre-existing conditions. However, appliances or systems that are functioning properly during the home inspection, but are toward the end of their lifespan, will be protected in most cases. While systems or appliances that are installed incorrectly or are not properly maintained will not be covered. For anything that is covered, you will have to pay a service fee that is usually between $75 and $125. The Home Improvement show This Old House complied a list of the Best Home Warranty Companies of 2022, which is a great resource to compare plans and pricing.
Buying a house as-is can seem like a scary endeavor, but you just need to take the proper steps to protect yourself:
- Review the Seller's Disclosure carefully with your real estate agent.
- Give yourself ample time to inspect the property thoroughly and get estimates for repairs from licensed contractors.
- Negotiate repairs with the seller, and don't be afraid to walk away if you can't come to terms. Remember you can cancel the contract for any reason without forfeiting your earnest money deposit during the inspection period. If the seller is willing to make concessions for repairs, consider getting a credit at closing rather than having the seller oversee the repairs, so you have more control over the workmanship.
- Request a home warranty from the seller when submitting your offer or purchase one yourself at closing. Home warranties will not usually cover defects found in the inspection, but they will repair or replace items that are near the end of their lifespan.