The Ins and Outs of Selling “As-Is”

If you’ve ever sold a home before, you know that even when things go well and you have help from great professionals, it’s not an easy undertaking.

One of the biggest pain points in the process of selling a home is going through the motions of preparing the home for market and making suggested repairs to optimize value and marketability. And then there’s the issue of navigating the home inspection process. Depending on the municipality where your property is located, there may also be the step of performing a use and occupancy inspection (aka the “U&O” or “CO” inspection) and complying with that set of condition standards.

There are steps you can take in the preparation for your home sale that can ease these steps, but the thought of being able to sell your home in “as-is” condition is tempting. Wouldn’t it be great to just let your potential buyers know that you’re looking for an “as-is” sale? However, I’d encourage you to consider the risks of taking this approach and using “as-is” language when marketing your property.

There are exceptions to this rule, which I’ll point out later in the article. For the exceptions to the rule where the “as-is” approach makes sense, I’ll also discuss what sort of clauses and language you’ll want your agreement to contain so that that is truly what is taking place.

Buyers perceive an “as-is” home as a fixer-upper

Would you categorize your home as a fixer-upper, or would you say it’s move-in ready? One of the risks of expressing an intent to sell your home “as-is” is that potential buyers tend to assume the property is in general disrepair and in need of significant remodeling or renovation.

If that’s the true condition of your home and you’re pricing it accordingly (toward the bottom of the value spectrum in alignment with lower sales in your area), this would be entirely acceptable language to use in representing its condition. In fact, it can help to narrow down the pool of interested buyers to those who are financially equipped and logistically prepared to take on such a project.

However, if your home is in relatively good condition and not in immediate need of serious attention to make it habitable, you may end up unintentionally presenting your home as a fixer-upper to the marketplace — and in turn, leaving resale value and resulting net proceeds behind.

“As-is” clauses do not eliminate disclosure obligations

This point is fairly straightforward: in Pennsylvania, as in many states, the seller is obligated to disclose known material defects about the property. Inserting “as-is” language into the terms of an agreement of sale on that property does not eliminate a seller’s obligations to disclose those known defects, or the development of any new defects between the time the disclosure statement is originally completed and the date of closing.

“As-is” language does not override mortgage lender requirements

If the property does in fact need some updating, and your buyer’s mortgage lender has the property appraised as a part of their process (which, in an overwhelming majority of cases, they will), one of the things that the appraiser looks at during their visit to the property is the condition of the home.

Each loan program, whether it is conventional, VA, FHA, or USDA, has guidelines pertaining to minimum property condition standards. If the property’s condition does not align with those standards, they will make a note of those issues in the appraisal report and flag them as a “subject to” condition. A “subject to” condition simply states that the issues in question need to be corrected, the appraiser needs to be notified when they are, and generally, the appraiser needs to re-inspect the property to confirm.

An “as-is” clause in the agreement is not going to coerce the lender to waiver from these condition guidelines. Make sure you’re aware of the general property condition standards for the loan program that your buyer is planning to use. As-is clause or not, if the transaction is going to reach consummation, somebody is going to need to make the repairs.

“As-is” language does not remove contract obligations unless clearly stated

Many “as-is” clauses that I have seen in agreements over the years would not hold a drop of water if they were a cup. They are vague, ambiguous, and do not prevail over pro forma clauses that are contained in agreements of sale to the contrary.

An example of this would be a clause inserted into an agreement that stated “The parties agree that this home is being sold in “as-is” condition.”

Let’s dissect this a little: what exactly does this clause mean? What is the condition of the property at the time of execution (in other words, what document or memorandum do we have to clearly document what the property’s condition was as the time the agreement was signed to define its present condition and therefore enforce the “as-is” clause)? Who is responsible for the use and occupancy inspection? What happens if the roof leaks and does damage to the home between the date of contract acceptance and settlement? What if the buyer performs their elected inspections and decides that they don’t want the house anymore; are they in default of the agreement? The “as-is” clause above addresses none of these issues.

My point is, if you’re going to use “as-is” language in your agreement, be clear about what that even means. Address issues specific to the transaction and scenario at hand within those clauses.

One example is an instance where the property is being sold in a true fixer-upper condition. It needs total renovation, and the municipality requires a use and occupancy inspection and a subsequent U&O permit prior to occupancy upon transfer. The buyer in this example has no intent of occupying the property prior to renovation and understands that much of their renovation list are also items which would be required by the municipality for a clear U&O permit. The buyer agrees to assume this responsibility. Made part of the PAR ASR (5/20 rev) may be a clause that reads:

“Buyer is responsible for all township requirements including but not limited to the Use and Occupancy permit required by _____________Township. Seller is released of any obligations set forth in this Agreement at Paragraph 15 and Buyer releases any options set forth in this Agreement at Paragraph 15 to terminate this Agreement.”

What this clause has done is removed the seller’s obligations to perform any tasks related to obtaining the U&O permit and has transferred that obligation to the buyer. The buyer has also released an option contained in the same paragraph to terminate the agreement in the event the seller does not obtain the U&O permit. This would be an example of clear “as-is” provisions.

Please note that I would strongly encourage consulting an attorney prior to entering into any agreement. This is not intended to serve as legal advice, but simply a guide and an illustrative example on the subject matter of “as-is” clauses.