There are several different ways to bid on a home. One common way many sellers have gone about it lately is selling their home “as-is.” This means the buyer agrees to purchase the home in its current condition. This condition could be good or bad. Basically, the seller states he is not going to change anything – the buyer takes on all responsibility. This may work to the seller’s benefit because he does not have to put the money or work into the things requiring repair or upgrade in the home. The buyer, however, may not find the as-is purchase as a good idea. It depends on the circumstances and what you can handle.
What Does an As-Is Purchase Really Mean?
You probably wonder just how bad could an as-is purchase get? A seller could not sell you a home with a roof about to cave in or a property with flooding problems, right? Unfortunately, they can. Here is how the as-is process works:
- The seller lists the property as an “as-is” sale
- The buyer bids on the property
- Once the seller accepts the bid, both parties sign a contract
- The buyer has a specific amount of time to secure a professional inspection
This first period following the contract signing is the most important. This is when you still have a chance to get out of the sale. If the inspector comes in and tells you there are cracks in the foundation; the property floods; and the plumbing needs replacement, you might want to run for the hills. At this point, you still can. You can even keep your earnest deposit. If, however, you let this period expire by either not securing an inspection or taking too long to make your decision, the property is yours. If you walk away after this point, you lose your security deposit, at the very least.
The Seller’s Role in the Purchase
The seller is not an innocent bystander in the as-is purchase process. As-is means the seller discloses any issues he “knows” about on the property. These are the obvious defects that anyone could point out in the home. For example, if the HVAC system did not work, the seller would know this if he lived in it for any length of time. This is something he needs to disclose according to the law. On the other hand, if the inspector found mold within the walls or faulty wiring, this may not be something the seller knew about. However, once the inspector or appraiser discloses a flaw, the seller must disclose these flaws to any future potential buyers.
Who Should Purchase This Type of Property?
The question still reigns – who should purchase this type of property? Typically, people who want a bargain on a home are those who look for properties sold with this status. They are generally aware that as-is homes are usually Real Estate Owned (foreclosed and bank owned) or a part of a short sale. Either way, the current owner will not make the necessary changes to the home. A bank may not even know what problems exist on the home – they just want to get rid of it. Sellers who are in a short sale do not have the money to fix up the home and just want to sell it before the mortgage company decides to foreclose on them.
If you have the money to fix up a home as well as the expertise to do it yourself, then you are in a good position. Even if you don’t have the expertise or the time to do it yourself, you may still be a good candidate if you have the money. Some buyers simply prioritize the repairs. They take the most important ones, such as roof repairs, and pay for them first. As they have the money for the minor repairs down the road, they tackle them one-by-one.
Passing the Appraisal Test
Regardless of the risk you wish to take, the lender may not be on the same page as you. Finding financing for an as-is purchase might be harder than any other type of purchase. The lender needs to know the home is a solid investment. They prove this with the professional appraisal. If the appraiser comes in and says the home is not worth what you bought it for or the home is in poor condition, most lenders will back out. If you really want the house despite the appraiser’s misgivings, you will have to pony up the difference between the appraised value and the agreed upon sales price. This again adds to the amount of money you need to put into the home right away.
Whether an as-is purchase is a good idea is a personal decision. How much money you have set aside for the repairs and the ability you have to perform some of them yourself plays a role. In addition, you need to figure out the type of financing you would be able to secure and whether you could afford any cash difference required when the appraisal comes back lower than anticipated. If you really have your heart set on a specific home and know you can make the changes necessary to make the home livable, then buying it as-is might not be as bad of an idea as many people make it out to be.