Uncovering the Truth: As-is Transactions

The Third Installment in a Series of Articles Dispelling Real Estate Myths

 Cori Lamont  |    June 03, 2011

An “as-is” clause may be used in the offer to purchase for any type of property. The reason why a seller may choose to use this type of clause may vary from financial constraints on the seller’s ability to commit any more funds to repairs, to environmental or other problems the seller does not want to confront, to an elderly person who is physically or mentally unable to deal with the situation. In other words, there are no limits on who may use an “as-is” clause or on the type of property that may be involved.

Generally, an “as-is” clause means that the seller (1) will not complete a Real Estate Condition Report (RECR) or other seller condition reports, leaving the buyer primarily responsible for determining the condition of the property being purchased, and (2) will not repair the property or “cure any defects.” Typically an “as-is” clause also alerts the buyer that he or she is responsible to determine the condition of the property being purchased.

The folklore of “as-is” urban legends are plentiful. However, the widespread tales, or a derivative there of, fit into one of the following five urban legends.

URBAN LEGEND # 1: A Seller Selling a Home "As-is" is Not Required to Make Any Disclosures

The Truth:
While the seller may believe deciding to sell “as-is” is as easy as playing the game Monopoly®, the use of an “as-is” clause is not necessarily a seller’s “Get Out of Jail Free Card.” The seller may still need to make some disclosures about the property.

  1. Seller cannot create risk: The seller has the duty to exercise ordinary care in refraining from any act which would cause foreseeable harm to another or create an unreasonable risk to others.
  2. Seller cannot conceal or prevent discovery of defects: the seller may be liable for misrepresentation if he or she actively conceals a defect or prevents a buyer from investigating the property and discovering the defect.
  3. Seller cannot make false affirmative representations: the seller may be liable if he or she makes false affirmative statements about the property.
  4. Seller must disclose defects that are difficult to discover: the seller may be liable in an “as-is” situation if he or she fails to disclose material conditions which the buyer is in a poor position to discover.

Thus the use of an “as-is” clause is not always going to be an escape for the seller from all disclosures.

URBAN LEGEND # 2: When Listing an "As-is" Property a Listing Agent is Not Required to Make Disclosures

The Truth:  The fact the seller is choosing to sell “as-is” does not eliminate the listing agent’s duty to disclose. Wis. Admin. Code § RL 24.07 requires licensees to disclose potential material adverse facts to the parties in writing and in a timely manner. In fact, where the buyer is purchasing “as-is” it is very important for the buyer to know the condition of the property. Generally, the buyer has professionals inspect the property as a condition of the offer to purchase, but this does not excuse the agent from his or her duty to assure that all known and information suggesting material adverse facts are disclosed in writing to the buyer.

URBAN LEGEND # 3: The Listing Agent is Not Required to Inspect the "As-is" Property

The Truth: 
License law requires all licensees to inspect the property by performing reasonably competent and diligent property inspections; regardless of the type of property or if it’s being sold “as-is.” § RL 24.07(1)(b) requires listing brokers to inspect the property prior to executing the listing and make inquiries of the seller on the condition of the structure, mechanical systems and other relevant aspects of the property as applicable.

The rule also states licensees shall ask the seller provide written responses to the licensee’s inquiry. Generally, this response takes the form of a RECR or a seller disclosure report. However, when a seller refuses to complete a report and sell “as is,” best practice for the listing broker would be to obtain written evidence that the licensee asked about the condition of the property and the seller refused to answer. The WRA Seller’s Refusal to Complete Condition Report form (SRR) could serve as that written evidence.

URBAN LEGEND # 4: A Seller of a Pre-1978 "As-Is" Property is Exempt From the Lead Based Paint Disclosures

The Truth: 
Lead-based paint (LBP) disclosure requirements are not waived with an “as-is” sale. Licensees are required to assure lead based paint disclosures are properly made. As of December 6, 1996, no offers on residential housing built prior to 1978 can be accepted without the LBP disclosure.

This disclosure requirement is independent of the RECR law. The penalties for noncompliance with the LBP law are federal and apply not only to the seller, but also to the real estate agents involved in the transaction who must ensure compliance.

URBAN LEGEND # 5: If a buyer is writing an offer on an "as-is" property, the buyer is prohibited from writing an offer contingent on a home inspection contingency.

The Truth:

While it is common for an “as-is” seller to counter out an inspection, the buyer is not prohibited from including an inspection contingency in the offer. If the buyer did not include this contingency, then the buyer would be buying the property “as-is.” An inspection contingency would generally give the buyer the option to back out of the offer if the defects were so bad that the buyer no longer wanted the property.

“As-is” language does not prevent inspection contingencies. It simply means that if the buyer goes through to closing, and defects are later found, they cannot go back to the seller for any compensation. The buyer is solely responsible for determining whether the property is in acceptable condition.

Cori Lamont is Director of Brokerage Regulation and Licensing for the WRA.

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