As-Is Home Sale Explained

There are a lot of questions and uncertainty surrounding the idea of an as-is home sale in the Bay Area. If you’ve heard the term but you’re not sure what it means, we’re going to unpack the concept for you.

What “As-Is” Actually Means in a California Purchase Agreement

Most real estate agents who work in the state of California are part of the California Association of Realtors, also referred to as CAR. Being a member of that association gives those agents access to a Residential Purchase Agreement, which serves as the standard contract that is used when someone wants to make a formal offer on a property. While some areas of California such as San Francisco and Silicon Valley have their own purchase agreements, most areas, including those two cities, still have access to the standard purchase agreement.

Within those standard purchase agreements, there is a clause that states that the buyer is purchasing the property as-is. What this means is that the seller does not agree to make any repairs, provide credits for any repairs, or reduce the price for any repairs which have already been disclosed, or which the buyer feels may be needed based on what they discover during their own inspections. Because this language is standard in almost every purchase agreement used by buyers in the Bay Area, almost every transaction in the Bay Area is, technically, an as-is home sale.

The Inspection Period Is Where Everything Really Happens

By default, the standard purchase agreement gives the buyer a time period known as the inspection contingency period. This time frame is also referred to as the due diligence period, and it is the window in which the buyer can have inspections performed on the property.

What Buyers Typically Look At

These inspections can cover a wide variety of topics including termites, mold, asbestos, septic, roofing, HVAC, land surveys, and more. It is not uncommon for potential buyers to discover information that was not identified in the seller’s disclosure package when the property was listed. Now, it’s important to note that most sellers don’t intentionally leave out the information discovered by the buyer during their inspection period. If, for example, a termite inspection shows that there is a mild termite presence under a home in the crawl space, the seller may truly have not known about the issue. These discoveries put the buyer and the seller in a potentially difficult position.

When Buyers Ask for Concessions Anyway

In most situations like this, the buyers will ask the sellers of the property to make some sort of concession regarding the issues discovered during the inspection phase. Sometimes the buyer may ask the seller to repair the issues out of pocket. In other instances, the buyer can ask that the seller extend some sort of credit, usually through a price reduction equal to the cost of remediation to repair the issue. Buyers can request these remedies even if the property is marketed as being sold as-is, and even though the contract (almost certainly) specifies that the home is to be sold as-is.

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The Seller Is Under No Obligation to Say Yes

However, as the terms of the purchase agreement (almost always) call for an as-is sale, things get interesting when the buyer asks for these concessions anyway. Since (typically) the seller accepted an offer which stipulates that the property is being sold as-is, in its current condition, he or she is not contractually obligated to make any repairs to the property or issue any credits or reductions in lieu of those repairs. In fact, not only can the seller refuse to fix any of the issues that the buyer uncovers during their inspection, but the seller can actually ignore the buyer’s request for repairs completely.

Which Puts the Ball Back in the Buyer’s Court

If the buyer’s inspection turns up some issues with the home that the seller refuses to repair or acknowledge, the buyer has every contractual right to walk away from the deal.

What Happens to the Earnest Money Deposit

Most real estate transactions include an earnest money deposit, which is a predetermined amount that the buyer pays to the seller to essentially show them that they are an earnest, legitimate buyer. While a buyer still has their inspection contingency, if the buyer decides to pull the plug on the sale due to issues uncovered during the inspection contingency period, California real estate law allows that buyer to have the earnest money deposit returned in full.

However, they will lose whatever they may have spent on inspections, appraisal, and so on. And per the standard California purchase agreement, they must turn over the inspection reports and whatever other information they’ve discovered at the property to the seller as well.

Hey Buyers, It’s Rough out There!

So How Do These Situations Usually End?

All this information begs the question. Obviously, if you’ve listed a property, you want to sell your Bay Area home. Additionally, if a buyer has made an offer on the property and gone to the trouble of paying for inspections, they want to purchase the property. With that in mind, most of these transactions end with the buyer and seller agreeing to some sort of negotiated price in which both parties give a little bit. No, the seller isn’t required to fix the issues, but failing to do so could result in the deal falling apart.

When Neither Side Will Budge

What happens, though, if the buyer asks for concessions surrounding these repair issues, but the seller is unyielding, or does not satisfy the buyer completely? If buyer and seller cannot come to an agreement, the seller may issue the buyer a notice to perform. After the prescribed period (typically 2 days), the seller will then be unilaterally able to cancel the contract and begin searching for a new buyer.

Selling As-Is in the Bay Area: Where to Start

If you’re selling a home in the Bay Area and plan on doing so through an as-is home sale, there are some steps that you should take. First of all, make sure that your disclosures are as accurate as possible. Doing so puts you in a much better position to negotiate with the buyer later on. If you have disclosed that the roof is going to need to be replaced soon, that there is some mild termite damage under the home, or that the septic tank may need to be replaced, the buyer won’t be able to say that he or she didn’t know about the issues. Also, don’t be afraid to be upfront about the issues associated with your property. In most cases, potential buyers make an offer on the property anyway, because they have to love it, warts and all.

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Exceptions to An As-Is Sale

It’s important to note, thought, that “as-is” is the default, not an absolute. Buyers, sellers, and their agents can write exceptions into the contract, and when they do, those exceptions override the as-is language for whatever they specifically cover. The most common one you’ll see in our area is a Section 1 termite clearance. A wood destroying pest report splits findings into Section 1, which is active infestation or existing damage, and Section 2, which is conditions likely to lead to a problem down the road. A buyer will often ask the seller to complete and pay for the Section 1 work and deliver a clearance before closing, and if the seller agrees to that in the contract, it is now a contractual obligation rather than a favor.

Sewer lateral compliance is another one, and this is more often a matter of local ordinance than buyer preference. A number of Bay Area cities and sanitary districts require the private sewer lateral to be inspected and certified at the time of sale, and the requirements are all over the map depending on where the property sits. When that applies, the parties have to decide who pays for the inspection and any repair, and that gets written into the contract because the sale cannot close cleanly without it. The same goes for other point-of-sale requirements a city might have on the books (e.g. low-flow plumbing fixtures, defensible space), so this is worth checking early rather than three days before closing.

The Bottom Line on As-Is Home Sales

If you’ve ever heard of an as-is home sale but weren’t sure what it truly meant, now you know. It doesn’t mean that the buyer is powerless and is forced to buy a home that is riddled with latent defects. The buyer has the power to simply cancel the contract, which may give the buyer considerable leverage. However, it also doesn’t mean that the seller is obligated to fix a long list of issues with the property, or any issues at all, big or small. Instead, it allows both parties to work together to come to an agreement that is best for both sides, or walk away if no reconciliation is possible. See also: how to handle outrageous concession requests.

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