Selling a House “As-Is”- What You Need to Know

Selling a House As-IsThe concept of selling a house “as-is” has been around for a long time. Typically used by institutional sellers, as-is gained popularity during the last recession. While the idea may sound appealing to many home sellers, there are a lot of things to consider before going this route.

Selling As-Is Defined

When a home is being sold “as-is”, it means the homeowner is selling the home in its current condition with no intention of making repairs or improvements before the sale.

While in most cases the buyer has the right to have a property inspection in order to discover the condition of the property, the seller is saying upfront they have no intention of making any repairs or financial concessions in lieu of repairs.

The as-is sale runs counter to common practice because home sellers are usually looking to get the most money possible from the sale of their home by making improvements, repairs and staging the home to show in the best possible light. There may be some cases where selling a home in as-is condition is the best way to sell but most of the time it is not.

Why Sell As-Is

As-Is home sellers are attracted to this type of sale because they like the idea of eliminating the expenses and hassles involved with preparing the home for sale as well as having to deal with any inspection negotiations items that might arise along the way.

A seller generally chooses to go this route because of either time or money. They know the home needs repairs but they don’t have the time or money to make those repairs.

Replacing Windows in As-Is HouseThere are a lot of repair issues that can arise with a house, many homeowners ignore the regular maintenance required by a home. Many of these issues come about as a result of deferred maintenance while others arise due to plain old bad luck. The types of repair issues that can lead a seller to choose the as-is route are often things like structural issues which depending on the severity can cost tens of thousands of dollars to repair. Other major repairs can be items like replacing the roof, windows, furnace, water heater, or expensive electrical issues all of these can be very costly.

Another example of as-is sellers is institutions or heirs. In these situations, the owner has little to no emotional attachment or sweat equity in the property. This type of seller is usually just looking to liquidate the asset and get what money they can out of the property without putting any money into it.

The issue for the home seller is that selling a home in as-is condition because of repair costs does not relieve them of their responsibility to disclose any pertinent information about the condition of their home.

Disclosure?

Some home sellers think that selling a property as-is eliminates their need to disclose any problems with the property. The truth is that if the seller knows about problems they need to disclose that information and failing to do so could cause serious problems for them later. If the buyer feels the seller was hiding material facts about the condition of the property, they could sue for damages.

Caveat Emptor
Caveat Emptor by Nick Youngson

Caveat emptor is the Latin term for “let the buyer beware.” until recently this was the standard attitude towards home buyers during the sales process. Changes in the way buyers are represented as well as new disclosure laws enacted at both state and national levels have changed this. Now sellers are required to disclose any negative conditions they are aware of regarding the property. This includes everything from previous water damage, foundation issues to Neighbor Disputes or boundary issues.

Most real estate companies require home sellers to complete a Sellers Property Disclosure. This document is the seller’s opportunity to disclose and describe any issues they are aware of.

There are instances when a seller doesn’t have to complete the seller’s property disclosure. This is generally in a situation where the property is owned by an institution like a bank or it is inherited by someone. In both cases, the owner has never lived in the property and therefore presumably has no knowledge of the property to disclose.

Buyers and As-Is Properties

Beyond the disclosure issues, are the perception issues related to selling a house as-is. Many home buyers won’t even look at an as-is listing. The fear is that there is something is wrong with the property and that they are buying a problem they might not be able to afford to fix. This means that the as-is sale ends up with interest mostly from investors and investors are looking for a deal, not a home.

Investors, just like regular buyers will do an inspection. If the results of the inspection reveal serious defects, the buyer or investor will want some compensation for the repairs. This can present a major barrier in the selling process unless the discount for the repairs is already built into the price and you can show the value in spite of the problems.

Selling “as-is” doesn’t mean the buyer can’t re-negotiate the price and as long as there is an inspection clause in the contract the buyer can get out if the repairs are too costly. The buyer has three options after the inspection:

  1. Close at the agreed-upon price.
  2. Cancel the contract.
  3. Re-negotiate with the seller for a lower price.Investing in As-Is Home

The as-is seller can hold their ground and refuse to renegotiate the price or terms of the sale but this whole process can take weeks. Two or three of these types of transactions can translate to months of wasted time. Investors know this and many use it to their advantage. As an “as-is seller” you are opening yourself up to this kind of manipulation.

A Better Approach

If you are serious about selling your home and you know there are problems, transparency is the best approach to take. By taking an open and transparent posture, you are leveling the playing field, the first thing this does is expands the potential pool of buyers that will be interested in your home. Eliminating the “as-is” designation removes the negative stigma associated with your property.

Pre-Listing Inspection

This is a bold move but it gives you a realistic sense of what the real issues are with the home. This helps with pricing and understanding what the potential inspection negotiations will look like. Additionally, many homebuyers will simply choose to use your inspection in lieu of doing an inspection of their own.

If the Pre-listing home inspection reveals larger issues outside the scope of the property inspectors’ expertise, you may need to consult a specialist for further evaluation. We often see this with structural issues, if the inspector finds potential problems with the foundation of the home, they will most likely recommend an evaluation by a structural engineer. If there is a problem, the engineer would produce a report and recommend potential solutions. Having this information is better than not having it. Once again the report offers a solution and a price for that solution.

You should take the information you discover during the pre-listing inspection and use it in order to get a sense of how much the repairs will cost. You would then use this information when you price the home.

Realistic Pricing

Once you are armed with a realistic sense of how much repairs will cost, you can start to focus on pricing. A Realtor can give you a good idea of what the fair market value of your home is if it were in good shape. By using this number in conjunction with the cost of repairs you will be able to come up with a listing price that is attractive to both regular home buyers as well as investors.

Being transparent about the condition of the home eliminates fear and suspicion about the home as well as questions about the seller’s integrity.

The idea is to create a sense that the property is a diamond in the rough. Here are the problems and we have discounted the listing price for those repairs. This sets the seller up for less friction during the negotiations as well as the subsequent inspection resolution.

Realistic Pricing for Fair Market ValueIn many cases, we see sellers that take this approach get into a multiple offer or bidding situation. They have created a sense that yes the property has problems but they have disclosed them Secondly, they have done their homework on pricing and have priced the property correctly for its condition and the area it’s in.

This bottom-up approach generally nets the seller more money than the traditional top-down, selling a house as-is approach. Instead of assuming the worst and negotiating downward accordingly, the buyers have a complete picture of the situation and are less likely to make low ball offers, ask for price reductions or request extensive repairs.

In Conclusion

It can be difficult going when it’s time to sell a home that needs significant repairs. While selling a house “as is” is certainly one option, it’s probably best used for institutional or estate sales. When it comes to selling a home you are familiar with, disclosure and transparency at least in regards to condition is the best policy.