What Does "As Is" Mean in Real Estate?

The real estate industry has its own unique language that can sometimes be confusing. One term that comes up a lot, especially in these times of bank-owned properties, short sales, and foreclosures, is "as is" and its variations "where is", and "in its present condition". There are some agents who feel that part of the reason we see "as is" cropping up more and more is because more buyers are being coached to use the home inspection as a reason to reopen negotiations (sometimes justified, sometimes not) and that sellers and their agents, who may have already lowered the price several times, are using it as a tactic to close the door on this practice.

This is not a term to be used lightly by sellers, because there are costs as well as benefits, and if you don’t know what it really means, you shouldn’t use it. Sellers commonly mistake "as is" as a way to avoid making any repairs, rationalizing that a lower asking price will reflect the condition and eliminate expectations. Buyers, however, tend to interpret "as is" differently. They sometimes take it as a sign of blood in the water and think that they can bargain way down from the asking price because they are now suspicious that many things are wrong with the house. Often buyers will be very wary of "as is" houses and even avoid viewing them or putting in an offer for fear of hidden defects that will reqire a lot of time or money. You might be better off without using that clause and having your agent stress that the inspection will probably not result in repairs or a price reduction.

"As is" is actually a legal term and concept used to disclaim liability for the condition of the house being sold. It says that the seller is selling, and the buyer is buying the house in whatever condition it presently exists, and that the buyer is accepting the house "with all faults", whether or not immediately apparent. It is most commonly (and correctly) used in estate situations or when banks or relocation companies own the property, where the sellers may have never lived in the house and have no knowledge of any issues/defects. In Massachusetts, the seller and their agent must disclose any known defects in the property in an "as is" purchase, but they don’t have to disclose what they don’t know.

This is the ultimate "buyer beware" situation, where a buyer must take the time to examine the home before accepting it. The buyer should also obtain expert inspection and legal advice and do what their experts recommend. They should also make sure their contract is contingent upon acceptable inspection approved by buyer, but understand that their only option is to take the house or walk-away, the seller is under no obligation to re-negotiate any inspection issues.

There are currently many great deals on "as is" houses, and I hope this post has been helpful.

What is a Short Sale?

Lots of buzz is going around about SHORT SALES, and how you can get a great deal buying a home in a short sale situation. But do you really know even what a short sale is, and what are the implications? Is a short sale the same thing as a foreclosure?

A short sale is any sale that results in a sale price that is insufficient to pay of all loans/liens and the expenses of the sale. In other words, the outstanding loans, back property taxes, mechanic's liens, and other seller monies owed (called obligations in legal circles) against the property are greater than what the property can be sold for. Basically, the lender will be accepting a discounted payoff. So what this means to you, is that even though you are negotiating on a property with the seller, your offer is contingent on approval by a 3rd party, their lender.

Why would a lender be willing to accept a short sale? It all comes down to $$ money. The lender is not in the business of owning real property, and their only alternative to accepting a short sale is foreclosure, and forclosures are notorious for consuming lots of time, running up expenses for maintenance and repairs, and costing sales commissions. Seems like a no-brainer, but why are short sales so difficult? Again, it all comes down to money - the lenders figure that the cost of foreclosure is currently running between $15 and $20,000 on an average property and buyers making an offer in which the "discount" is considerably more than that will have a hard time proving that it's a great deal for the lender, who is in the business of making money on their money.

If you are a typical buyer, you are very excited to put in an offer on a property and are anxious to hear from the sellers that your offer is accepted. With short sales your offer goes into a pile on somebody's desk (depending on who is servicing or holding the loan) and their sense of urgency and "time is of the essence" is not like yours. If you've ever gone to the Massachusetts Registry of Motor Vehicles and enjoyed the experience, you'll love short sales. So, buyers who make a short sale offer on a property should be prepared for the following:

1. delays, delays and more delays



2. uncertainty coupled with a high chance of failure
   
   
   
3. no guarantees of responsiveness



4. changes to the price, terms, or conditions agreed on in the original offer



5. expending funds to cover appraisals, inspections, loan fees, title searches, and other items and then learning that the lender's approval cannot be obtained



6. there may be other unforeseen events outside the seller's & buyer's control

Also, if the seller's lender approves a short sale, they will have certain unbending expectations of the buyer, and they are:

1. good credit and strong down payment


2. no negotiations from home inspection


3. ability to secure financing and adhere to commitment deadlines
   
4. ability to move and close quickly after the approval has been granted

Before you make a short sale offer on any property you should engage the services of an attorney and a tax professional in addition to your buyer's agent. There are many nuances of every decision you make and you need expert guidance. From a Realtor's perspective, here are a few things you as a buyer should consider:

1. You can and should continue to search for other properties to purchase, but if you make an offer on another property and it is accepted you may be in a contractual obligation to buy multiple properties and it may void your loan pre-approval.
   
   
2. You should avoid "contrary choices" such as letting the seller stay in the home ( a huge no-no) and requiring concessions from the seller on the purchase and sale agreement ( the national and state laws do not allow this)



3. The seller's agent is required to disclose when the asking price will result in a short sale. However, the asking price may be just enough to cover all costs and technically not be a short sale. So your offer, if it is less than the asking price will be a short sale offer, triggering all of the above implications even if you didn't know it, and you have no recourse against the seller's agent.

In summary, short sales can be complicated and time consuming, carry significant risk, and have tax and legal implications, and are not for the "faint of heart". But if you're a willing and able buyer, you can get the home you want at a discount. If you're a willing and able seller, you can get out from under a huge financial mess while still preserving your credit and sanity.