What You Need To Know Before Buying An ‘As-Is’ House

In a recent transaction, the buyer didn’t find out the house had worrisome structural issues until after he submitted the offer.

The buyer signed a contract to purchase the home in the same condition as of the “contract date,” which is defined as the date the offer was submitted.

On the surface, this appears to be a devastating blow to the buyer.  Was he stuck buying a $959,000 lemon?

In Maryland, Virginia and the District, a residential sales contract states that the buyer and seller agree that the home is being sold in “as-is” condition, as of an agreed upon date.

The Northern Virginia Association of Realtors’ (NVAR) sales contract and the Greater Capital Area Association of Realtors’ regional contract (GCAAR) share similar language about the condition of the property at settlement.

Both contracts allow the parties to determine when the “as-is” condition of the property is established — at the contract date, at the date of a home inspection or another agreed upon date.

The Maryland Association of Realtors’ (MAR) contract states that the property will convey in “as-is” condition as of the date of contract acceptance. The MAR contract is used in most Maryland counties, except in Montgomery County where the GCAAR regional contract is more the norm.

The “as-is” language in all of the local contracts puts a heavy weight on a buyer’s shoulders.  It is up to the buyer to ascertain the condition of the property, despite the fact that sellers are required to disclose known latent defects.

According to Bobby Lee, regional vice president of Sage Title Group, purchasing a property as of the contract date means that any changes to the condition of the property from the contract date to the date of settlement is the responsibility of the seller.

In this case, the seller could have argued that the home had not changed condition since the contract date and, thus, the buyer was obligated to purchase the house with the structural defects.

So did the buyer have to buy a lemon? Fortunately, the buyer heeded advice to require a home inspection contingency as part of the contract.

The home inspection contingency language allows for a buyer to back out of a contract, for any reason, after a licensed home inspector completes an inspection and prior to the deadline of the contingency.

The structural issues were discovered during the home inspection.   The buyer elected to back out of the contract, a legitimate escape agreed upon in the contract, and obtain a refund of his earnest money deposit.

“I would actually recommend that a buyer purchase a home in the same condition as of the home inspection date,” said Jill Pogach Michaels of The Law Offices of Jill Pogach Michaels.

“This protects both the buyer and the seller,” Michaels said in a recent interview.  “A home inspection report serves as evidence of the true condition of the property and can prevent disagreements about changes to the condition of the property up until settlement.”

Lee agreed.  “Although not perfect, the home inspection report provides a written frame of reference as to the condition of the property.”

Here are some tips for buyers and sellers involved with ‘as-is’ sales:

• Buyers should insist on a home inspection contingency in the contract, unless you plan to tear down the home and build new construction.

• Immediately upon ratification of a contract, buyers should call their insurance agent and ask that they review the Comprehensive Loss Underwriting Exchange (CLUE) report on the home, to determine if any insurance claims have been made.

• Buyers should use a licensed home inspector. A thorough home inspection should take at least two to three hours for a small to medium-sized home and up to four or more hours for a large home.  Your real estate agent should attend the entire home inspection with you.

• Sellers should conduct an inspection of the home prior to listing it for sale, to remedy any issues discovered prior to entering a contract with a buyer. This reduces the likelihood of a buyer backing out of a transaction because of home inspection items.

• Sellers should disclose any known latent defects upfront to a buyer. This would reduce the likelihood of any disputes in the future.