As-is Does Not Mean Act As-if You are the Exception to the Rule


 Cori Lamont  |    March 05, 2015
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In last few months, I have had a number of conversations with real estate licensees about “as-is” transactions — specifically about the Real Estate Condition Report (RECR) and the liability of the seller and of the real estate licensee relating to “as-is” transactions. The “as-is” discussion is ginormous, so instead of trying to cover each nuanced part of it, this article focuses on the laws surrounding properties being sold “as-is” and the liability of real estate licensees and sellers in “as-is” transactions. One thing is clear from the discussions I’ve had: the rules as to inspection and disclosure still apply to real estate licensees and may apply to sellers. An “as-is” sale does not create an exemption from the “rules” for sellers and real estate agents.

The nature of an “as-is” clause

A seller of any type of property may choose to sell the property “as-is.” Generally, an “as-is” clause means the seller (1) will not complete a RECR or other 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 same laws apply to properties being sold “as-is” 

When a property is being sold “as-is,” licensees still need to follow license law. Real estate licensees are still required to inspect the property, per Wis. Admin. Code § REEB 24.07(1)(a). All real estate licensees, including listing and cooperating licensees in a transaction, must perform a reasonably competent and diligent property inspection. 

The timing as to when such an inspection must be accomplished varies depending on the relationship with the seller. Wis. Admin. Code § REEB 24.07(1)(b) requires listing brokers, who can occur via the listing agent, to inspect the property prior to executing the listing and inquire the seller about the condition of the structure, mechanical systems and other relevant aspects of the property as applicable. However, cooperating licensees must inspect the property prior to or during a showing of the property.

Wis. Admin. Code § REEB 24.07(1)(b) also states licensees shall ask the seller to provide written responses to the licensee’s inquiry. Typically 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.

Also keep in mind that if the property was built prior to 1978, an offer on residential housing cannot be accepted without a lead-based paint (LBP) disclosure. This federally required disclosure is not waived even if a property is being sold “as-is.” The LBP disclosure is separate from the RECR law, and penalties for failure to comply with the LBP law apply to both the sellers and the real estate licensees involved in the transaction. For more information about LBP, visit the WRA’s LBP resource page online at www.wra.org/LBP.

The RECR in an “as-is” transaction

Sellers of residential (one-to-four family dwellings) and vacant land are required to complete a Real Estate Condition Report (RECR) or a Vacant Land Disclosure Report (VLDR), respectively. Wis. Stat. Chapter 709 does not apply to:

  1. Personal representatives, trustees, conservators and other fiduciaries appointed by or subject to supervision by the court, but only if those persons have never occupied the property. This exception does not include powers of attorney. 
  2. Real estate that has not been inhabited, such as new construction. Remember that vacant land is not exempt.
  3. Transfers exempt from the real estate transfer fee, such as between spouses, foreclosures or probate transfers. This exception does not include bank-owned (REO) sales of foreclosed properties.

Also keep in mind that there is no exemption from the Wis. Stat. § 709.01 requirement for a residential seller to complete a § 709.03 RECR for real estate containing one-to-four dwelling units based solely on the fact that the owner does not occupy the property. 

While there is more than one way a buyer may exercise recission rights as it relates to a RECR or VLDR, a common discussion regarding “as-is” transactions and buyer's recission rights exists because typically a RECR or VLDR is not completed by the seller in an “as-is” transaction. When a seller who is required to complete a RECR or VLDR chooses not to complete one, then the seller should be informed that even though they refuse to complete a RECR or VLDR, the buyer will have the right to rescind under Wis. Stat. § 709.05. This section of the statute permits a buyer to rescind a contract if a RECR or VLDR is not provided. The right to rescind in this section of the statute reads in part, “A prospective buyer who does not receive a report within the 10 days may, within 2 business days after the end of that 10−day period, rescind the contract of sale or option contract by delivering a written notice of rescission to the owner or to the owner's agent.”

A buyer waives their rescission rights to a RECR or a VLDR if they do not rescind the offer within two business days of 10 days after acceptance of the offer. Wis. Stat. § 709.08 provides, “Waiver. A buyer may waive in writing the right to rescind under s. 709.05. If a buyer proceeds to closing, the buyer's right to rescind under s. 709.05 is terminated. A buyer may waive in writing the right to receive the report required under s. 709.02.” If the seller refuses to complete the RECR and sell “as-is,” they could also refuse to accept any offers from buyers who do not waive their §709.05 rescission rights.

Liability

Real estate licensees

The fact the seller is choosing to sell “as-is” does not eliminate the listing agent’s duty to disclose. Wis. Admin. Code § REEB 24.07 requires licensees to disclose known and potential material adverse facts to the parties in writing and in a timely manner. In fact, when a 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 information suggesting material adverse facts are disclosed in writing to the buyer. 

Sellers 

Some sellers believe that selling a property “as-is” means no disclosures are required. However, that is not true, and the seller may need to make some disclosures about the property. For instance:

  • The seller cannot create risk: The seller has the duty to exercise ordinary care in refraining from any act that would cause foreseeable harm to another or create an unreasonable risk to others.
  • The 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.
  • The seller cannot make false affirmative representations: The seller may be liable if he or she makes false affirmative statements about the property.
  • The 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 that the buyer is in a poor position to discover.

Thus the use of an “as-is” clause will not always serve as an escape for a seller from all disclosures. And as a real estate licensee involved in an “as-is” transaction, you are required to still comply with all applicable laws — and the seller may be required to disclose certain things even though the seller is selling “as-is.” 

“As-is” transactions do not permit licensees to act “as if” they are the exception to the rules; for the most part, there are very few exemptions to a licensee's actions in “as-is” transactions.

Cori Lamont is Director of Corporate and Regulatory Affairs for the WRA.

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