Fall Real Estate 2003

Publication Date: Wednesday, October 8, 2003

Know what you're buying
Be aware in an 'as-is' sale

by Nisha Ramachandran

When Julie Nelson-Gal and her family were looking for a place in Palo Alto, they found a house that needed a new foundation. The estimated repair cost? $50,000.

They still bid on the property.

Jose Gonzalez paints the interior of a newly purchased home in Menlo Park.

While many prospective buyers are wary of houses that are in need of extensive repairs, Nelson-Gal was looking to renovate. "We wanted an old, beat-up house that we could fix up," she said. And since the seller was offering the house "as is," it was the perfect find for the Nelson-Gals.

In an "as is" transaction, a buyer agrees to purchase a house in its present condition, relieving the seller of any responsibility to make repairs or modifications to the property. But even when it is advantageous to the buyer and seller to make such a deal, both parties still need to be cautious about the terms of the transaction.

"The whole point of an 'as is' sale is that the seller wants nothing to do with rehabilitation of the home," said Coldwell Banker real estate agent Zach Trailer.
Sellers usually opt for "as is" transactions for a variety of reasons: They may have an older house and envision problems with the property, want an expedient transfer without any lingering burdens or simply do not want to be bothered by effecting repairs on the property

Although sellers have no obligation to fix defects in an "as is" sale, they are still obligated to disclose any defects they know about the property.

"The most important thing to know about 'as is' sales is that it doesn't mean you get to conceal defects," Palo Alto real estate attorney Peter Brewer said. "A seller is not relieved from the same requirements of disclosure required in any other transaction."

According to Brewer, "a buyer who buys 'as is' has legal recourse only if they can demonstrate that the seller had prior knowledge of the defect." That means that if a buyer finds something wrong with the property after the transaction is complete but the seller was not aware of the defect, the buyer cannot hold the seller responsible.

Sellers can protect themselves from lawsuits by releasing any information they have about the property.

There are fewer problems with "as is" sales "if you provide all the information and do all the reports up front," said Bob Gerlach, manager of Alain Pinel Realtors in Palo Alto. "When that isn't done, then you may have conflicts."
By law, sellers are required to disclose the condition of their property in a Transfer Disclosure Statement (TDS) as specified in section 1102 of the California Civil Code. On the form, sellers must note the operating condition of items in the house such as the range, dishwasher, central air conditioning and oven.

They must also detail any "significant defects/malfunctions" in areas of the house, such as the foundation, floors or exterior walls and report other items such as any neighborhood noise problems or major damage to the property from fire, earthquake, floods or landslides.

Real-estate agencies usually also supplement the TDS form with additional transfer disclosure statements. Supplemental transfer disclosure can often address more specific concerns about a property. Judy Jarvis Ellis, president of the Silicon Valley Association of Realtors and an agent with Alain Pinel Realtors, said she often provides an additional environmental hazards disclosure form to cover any flood or earthquake hazards presented by the property.

In addition to disclosure forms, sellers should also conduct a home inspection on their property before they list it "as is."

With a home inspection, sellers can become more informed about the condition of their property with a house inspection. They can also pass along more information to buyers who may be hesitant about buying an "as is" property. Buyers may be deterred from purchasing an "as is" home because they feel uninformed about the property.

"Get the buyer as much information as possible and then the buyer doesn't mind 'as is' as much," Gerlach said.

Sellers also have the option of using the information provided in a house inspection to make some repairs on the house and then list the house "as is." In this case, the "seller is using 'as is' as a tool to say that at some point, work on the house stops," he said.

Even with disclosure forms and house inspections by the seller, Realtors and lawyers strongly recommend that buyers conduct their own home inspection on an "as is" property. "I would not recommend any of my buyers to buy any property without any inspections," said Anna Salas, an agent with Prudential California Realty.

Brewer recommends that "as is" buyers have a home or structural inspection and a pest control inspection, and if needed, conduct additional tests on the roof, chimney and fireplace. "The buyer's only protection against risk is adequate inspection by competent professionals," he said.

Buyers should also be aware that if they find something wrong with an "as is" property during an inspection, a seller doesn't have any obligation to address the problem. "As a result of inspections (by the buyer), the buyer cannot go back to seller and say 'we want this repaired,' " Ellis said.

However, real-estate agents say since the current market is less competitive than previous years, sellers may be more willing to negotiate with the buyer.

"As is" sales typically occur when there is a buyer who has extensive renovation plans, wants to demolish the current property or when there are multiple bids on a house. In such cases, the seller has the luxury of choosing the offer that best suits his terms.

"As we're getting into an environment with one or two offers on the property, the seller is more conducive to working with the buyer," said Sherry Bucolo, an Alain Pinel Realtors agent.

For Nelson-Gal, the "as is" clause became a way to make the seller more comfortable with her offer. The family lost their bid on the house with the foundation repairs but eventually offered to buy a newer home "as is" for a bid below the asking price.

"It was a way to make the owner more confident that we were going to buy the house," Nelson-Gal said. "We went in and said we were going to bid below but after a walk through, we were not going to come back and ask for more."
Even though their new house doesn't need extensive renovations, Nelson-Gal said she is pleased with the way things turned out. "We bought a completely different house than what we wanted but we're very happy."

Nisha Ramachandran is an editorial intern for the Weekly. She can be e-mailed at nramachandran@paweekly.com.

"The most important thing to know about 'as is' sales is that it doesn't mean you get to conceal defects," -- Peter Brewer, Palo Alto real estate attorney