As bank-owned properties and foreclosed homes continue to make up a significant portion of the housing market, "as is" sales are becoming more and more common. In some cases, an "as is" clause in the purchase agreement doesn't automatically sour the deal. In others, it can be a sign for potential buyers to run as far from the offer as they can. Either way, make sure you have an affordable home insurance policy.
How can you identify which case it will be?
Consult the Experts
Real estate attorney Scott Berry said homes sold "as is" are more than just the seller's unwillingness to make repairs before unloading the property.
"It also removes them from any legal responsibility or liability for the home," Berry said. "The house could fall down on the ears of the buyer five minutes after they move in, and there is no legal recourse for the new owner."
Unlike so-called "lemon laws" governing the sale of new cars, few state statutes include language that protects home buyers from a less than forthright disclosure process. That's because most homes sold "as is" are bank-owned, REO or in the short sale process.
These "owners" may not even live in the same state as the property, they have never even set foot on the property, and their "knowledge" of any severe defects or issues is extremely limited. Their butts are covered, leaving any new owners extremely exposed.
Don't Skip the Inspection
Having a professional inspection conducted before the purchase of a home is always important, but it is extremely vital in the case of "as is" properties. Because most of theses homes are no longer owned by individual residents, you will probably have to pay for the costs of an inspection yourself. At $200 to $400, it is a relatively small investment that can avoid costing thousands of dollars down the road.
Real estate agent Daryl Bronniche said most of his colleagues are like him, and have two or three qualified inspectors they work with on a regular basis. Ask your agent if they can refer you to a certified home inspector who can help identify any features of the home that are in need of repairs.
"You don't want to go into an 'as is' deal blind," Bronniche said. "Get the facts so you can make an informed decision."
Calculate the Costs of Repairs
Once you have your inspection in hand, which will literally be a binder full of information, you can use it as a negotiation tool in any offer you make. Your inspection should include assessments regarding everything from the home's electrical and heating systems, to the condition of the roof, foundation and other structural aspects, to how many years the windows have left in them before they need replacing.
If the inspector says the home needs a new roof immediately, you can deduct the costs for repairs from the asking price. Many buyers are attracted to these homes because with a relatively minor improvement such as a new roof, the house is good as new and worth far more than what they paid for it. If the inspection comes back stating the foundation is in dire straights, you may want to avoid the deal all together, however.
Consider Your Financing
If you are planning to finance your 'as is' home purchase with a VA, HUD, or FHA loan, and even some privately underwritten mortgages, you may not be able to purchase a home in need of significant repairs. If the inspector says the house needs a new roof or repairs to the foundation, your lender may quash the deal right there.
These financing options would allow you to purchase the home if the seller agreed to make the repairs before you signed off on any agreement, but they will not agree to the deal in any other case. Because the "as is" clause is included so sellers can avoid doing just that, you may need to find different financing or find another home that doesn't require substantial repairs.
'As Is' Homes Can Impact Insurance
Unless you plan on paying cash for this home, chances are you will be required to carry homeowners coverage on the property as mandated by your lender. 'As is' homes that need work can be a great investment, but they pose a problem when it comes time to buy insurance. Many insurance companies are reluctant to insure an old home that has not been fully updated. Many providers will deny claims stemming from known structural problems.
It's important to speak with a qualified insurance agent who can help you find the right policy from a company willing to insure your home at rates you can afford. Independent insurance agents, such as those in our network, can find you a number of quotes from a variety of insurance companies. When buying an 'as is' home, it's important to shop around to find the right policy with sufficient coverage. You want an agent who works for you, not the insurance company.