Beware of As-Is Contracts

Purchase and Sale Agreements for distressed properties are generally written “as is.” Florida and many other states have specific “as is” versions of the state contract form that are used for these deals. There are several reasons for and consequences of an “as is” contract.

The “as is” contract acts, to some extent, as a protection for the seller from a charge of fraud. The “as is” clause in most states, however, does not absolve a seller from submitting an accurate disclosure statement. The “as is” clause serves as a warning that it is incumbent on the buyer to discover the actual repairs needed and their costs by hiring a qualified home inspector to evaluate the property.

It’s Buyer Beware.

While most states will allow a law suit if the seller lies on a disclosure form and there is harm to the buyer as a result, there are situations where the “as is” contract has protected a seller from being sued even when the disclosure was not accurate. Tara-Nicholle Nelson recently cited an Alabama case where the “as is” contract contained no warranties about the property and the inaccurate disclosure statement was not specifically included in the contract. The seller’s lawsuit concerning seasonal flooding that occurred on the property that was not revealed in the disclosure document was thrown out because of the “as is” contract protection.

The “as is” contract also serves as a warning to buyers that the seller is unlikely to agree to any repairs or added expenses in order to induce a buyer to sign the contract. When the buyer discovers a defect that was not reflected in the price, they should be covered to back out of the deal, based on an inspection contingency. In a short sale deal if there is an addendum that indicates the price offered is subject to change based on negotiation with the Lender, the buyer may be able to lower the offer based on new information about the condition of the property.

Many retail buyers are reluctant to sign “as is” contracts because of the concern about hidden problems with the property. In reality, problems can happen with retail property also. An owner who did not live in the property, or only lived in the property for a short time, may be unaware of a growing structural or hidden problem and may legitimately claim on the disclosure not to know about a problem that shows up after the new owner takes possession.

Buyers should always beware and always inspect. Recognize “as is” as an opportunity to buy a property at a wholesale price because “as is” is an indication of distress of the property, the owner, or both.