In a low-inventory market, buyers are making compromises left and right to secure their future home. But before your buyers commit to an “as-is” purchase, they should know what they’re getting into. Here are seven risks to be aware of when buying a home in “as-is” condition.
For sellers, selling a home “as is” can be like getting a hall pass. By declaring “as is,” they shift the burden of repair, and possibly disclosure and discovery (if they truly did not know about certain things), entirely to the buyer.
For a buyer, the words “as is” can be a scary proposition. “As is” means that the sellers are essentially saying that they will not make any repairs, known or otherwise. Buying a home under these circumstances means accepting the property in its current condition no matter what it may be.
Although inspections are typically done, the “as is” caveat is more about what cannot be seen or is not revealed rather than the issues actually observed.
Sometimes, the items that are in need of repairs are often symptomatic of larger issues that will not be fully known until a more invasive investigation can be done, such as opening up a wall or removing some shingles on a roof to determine what is really going on.
In a low-inventory market, buyers are making compromises left and right to secure their future home. But before your buyers commit to an “as-is” purchase, they should know what they’re getting into.
Here are seven risks to be aware of when buying a home in “as-is” condition.
1. Surprise problems
There is much more to the story than the inspection reveals.
Perhaps the home has been on the market during a very dry climate with little to no rain. Although the inspection did not reveal any issues with regard to potential leaks, when the first torrential downpour hits, the property starts to leak like a sieve, and problems crop up everywhere, particularly around a chimney, skylights, windows, balconies, and of course, the basement.
2. Hidden damage
Homeowners might not find out about this unless they take on some remodeling or tackle a repair that becomes more involved than initially thought.
When a wall is opened up or removed entirely, or a shower is taken apart in the course of a bathroom redo, owners could find rotted studs behind the walls due to termite or water damage, which could result in more extensive and expensive repairs than they had initially planned.
3. Murphy’s Law
What appeared to work just fine, even though it was nearing the end of its life, fails sooner than anticipated.
The water heater (that was original but was functioning) and the air conditioner that appeared to be cooling properly on the day of the inspection (despite it being 15-plus years old) decide to conk out within the first few days the buyer takes possession of the house.
Basically, whatever it is that’s nearing the end of its life will typically fail sooner than what the buyers hoped.
The sellers’ position is that they have accounted for these older elements in their pricing (whether or not that is accurate relative to the local market), so the buyers are usually unable to renegotiate the price (or receive some sort of credit to account for this after the home inspection), thus they live on a hope and prayer keeping their fingers crossed that they will not have to replace these things right away.
In these scenarios, the buyers have no choice other than to shell out money for an immediate fix or replacement that has to be made.
4. Chronic repair issues
The patch repair that was repeatedly done on the roof no longer works, and it just needs to be replaced so it won’t leak with every heavy rain.
The buyers had hoped to defer tackling this for a few years because they have other priorities, such as cosmetic remodeling, but alas, this has to be dealt with now, not five years from now.
5. A money pit
Living in the house reveals problem after problem. Catch an episode of any renovation or house-flipping show to see what they encounter as most of those properties are bought “as is” and sometimes sight unseen.
Major structural issues come to light that are extremely costly and were not initially budgeted or planned for. It is not just the roof, but the plumbing, the electrical and even foundation or structural issues.
There could also be things like asbestos or lead-based paint that is going to cost additional money to remediate. Suddenly the “good deal” the buyers thought they were getting is anything but, and major buyer’s remorse starts to set in.
6. No warranties, no information, no clue
The sellers may not be in a position to provide any history or insight as to the home’s elements or issues. The sellers could have acquired the property through foreclosure, never occupied it or are handling the sale of property belonging to someone who has passed away.
The only way to know anything is to do some major detective work canvassing any and all public records available to determine if any permits were pulled, who the contractors were, who manufactured the various systems and the age of the components.
If the property is part of an association, contacting the management company and the association’s officers as well as speaking to neighbors may also help buyers get a grip on the state of affairs in the neighborhood (fiscally and otherwise).
A good home inspection can assist in identifying much of this information, however, despite best efforts, there will likely be some missing pieces to the puzzle.
7. The worst case scenario
Buying “as is” translates into an unknown factor in what is the single largest transaction most people ever make in their lifetime. Despite all the due diligence and hiring the best inspectors, there is likely to be an element of surprise when taking on a home being sold this way.
Buyers must always consider the worst-case scenario and make sure they are able to budget for more than originally planned (beyond cosmetics).
Before buying “as is,” a buyer should consider all of the above. Although these risks are prevalent to a certain degree, even when a seller has made disclosures and is willing to address repairs in some way, the burden of knowingly taking on the unknown can make the most fearless of buyers shake in his or her boots.
Because “as-is” matters almost always come down to dollars and cents.