There are a lot of questions and uncertainty surrounding the idea of an “as-is” home sale in California. If you’ve heard the term, but you’re not sure what it means, we’re going to unpack the concept for you. 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. That means that the condition of the property is known by both the buyer and seller and that the buyer wants to purchase the property in its present state.
However, according to California real estate law, the buyer is still allocated a certain time period known as the “inspection period.” This time frame is also referred to as the due diligence period and is the timeframe in which the buyer can have inspections performed on the property. 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 run across information that was not disclosed by the buyer 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. For instance, if 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.
In most cases, 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. Sellers can request these remedies even if the property is listed as an As-Is sale.
However, if the seller has listed the property as an As-Is sale, things get even more interesting when the buyer asks for these concessions. Obviously, the seller has marked that the property is being sold in its current condition, so he or she is not legally obligated to make any upgrades to the property. In fact, not only can the seller refuse to fix any of the issues that the buyer uncovers during their inspection, but he or she can actually ignore the findings of the inspection altogether.
This 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 seller has every legal right to walk away from the deal. 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 should stop marketing the property. If a buyer decides to walk away from an as-is transaction due to issues uncovered during the inspection phase, California real estate law allows that buyer to recover his or her earnest money deposit without penalty.
All this information begs the question: how do these transactions usually end? Obviously, if you’ve listed a property, you want to sell your 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.
If you’re selling a property and plan on doing so through an as-is sale, there are some steps that you should take. First of all, make sure that your disclosures are as accurate as possible. Not only is this a legal aspect of the process, but it also 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 seller 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 98% of cases, potential buyers make an offer on the property anyway.
If you’ve ever heard of an “as-is” transaction but weren’t sure what it truly meant, now you know. It doesn’t mean that the seller is powerless and is forced to buy a home that is riddled with latent defects. However, it also doesn’t mean that the buyer is obligated to fix a long list of issues with the property. Instead, it allows both parties to work together to come to an agreement that is best for both sides.