The Best of the Legal Hotline: As Is Effects on the Transaction

 Tracy Rucka, WRA director of professional standards and practices  |    May 02, 2022
Legal Hottips

The simple term “as is” can have great impact on a real estate transaction for both the parties and the agents involved. The following is general information about the seller’s duties to disclose, the possible implications of using an as-is clause in the offer, as well as a summary of an agent’s duty to inspect and disclose material adverse facts and information suggesting material adverse facts.

What does “as is” really mean? 

It depends. If a seller states they want to sell as is, the listing agent can ask questions to determine what this specific seller is trying to accomplish. Frequent responses include the following:

  • Seller does not want to make repairs or put any funds into the property.
  • Seller thinks they are exempt from providing a Real Estate Condition Report (RECR), so they won’t make representations.
  • Seller is aware of defects in the property and thinks they can hide or conceal them. 
  • Seller thinks they won’t get sued after closing if they sell as is.

These are all legitimate responses, but none capture the layers of legal analysis and implications of as-is sales. Therefore, it is prudent practice for licensees to refer parties to legal counsel when they have specific legal questions about a transaction. 

Let’s take a closer look at each of these possible seller reasons for selling as is. 

Reason 1: The seller has no funds to make repairs

At the time of the listing, the seller may express their desire to sell the property in the current condition. They may want to minimize or eliminate making repairs or modifications to the property, either because they claim there are no funds to make repairs or in an attempt to maximize profits on the sale. However, at the time of the listing, no one has a crystal ball about what, if anything, a home inspection or test would identify as issues with the property. Likewise, depending on the potential buyer’s financing, there may be underwriting standards that would necessitate repairs to the property prior to closing. The agent may communicate with cooperating agents about the seller’s initial statements regarding hesitancy to make repairs but, until there is an amendment or a notice of defects provided to the seller, it is unknown what they will or will not do to complete a transaction. 

Reason 2: The seller thinks they are exempt from the RECR

Is the seller really exempt from the RECR, or is the seller just choosing not to provide one?

The best tool for education and risk reduction is the WRA-SRR form, the Seller Refusal/Statement Regarding Condition or Disclosure Report document, found in Transactions (zipForm edition) as well as in the WRA PDF Forms Library for library subscribers. This form identifies the characteristics of sellers who are, per the statutes, exempt from completing a RECR. If the seller cannot check any of the boxes as an exempt seller, then the seller is not exempt. The seller may, upon advice of legal counsel, choose not to provide a RECR. In such an instance, the listing agent will have the seller check the “Seller Refusal to Complete” box and keep the document in the transaction file. 

At the time of the listing, it may be helpful for the agent to suggest the seller review the offer to purchase and consult with counsel. The offer to purchase states the “Seller represents to Buyer that as of the date of acceptance Seller has no notice or knowledge of Conditions Affecting the Property or Transaction, other than those identified in the Seller’s Real Estate Condition Report ...” Therefore, if the seller knows of defects or other conditions affecting the property and they do not provide a RECR or counter the offer, the seller will be making misrepresentations in the offer. The seller may, prior to receipt of offers, consult with counsel about how to counter or modify the property condition representations section in an attempt to minimize potential liability. Real estate licensees should avoid drafting such provisions as it would presumably cross over into the unlicensed practice of law. 

REASON 3: The seller knows the property condition

Property flippers are exempt from the RECR, right?

No. This is an urban legend. Again, review the WRA Seller Refusal form for a list of sellers who are exempt from providing a RECR.

Reason 4: The seller wants to avoid litigation

The seller won’t get sued, right? 

As the old saying goes, anyone can sue anyone for anything. Some sellers mistakenly have the false perception that selling as is is a bulletproof vest to avoid future litigation, but this is false. The provisions may put the buyer on notice to inspect or raise questions about the property condition, but it is not a bar to later litigation and, as mentioned above, if it is proven the seller knew of defects and did not disclose and the buyer relied on the seller’s representations, the buyer has the likelihood of successful misrepresentation claims. 

What if the seller does not know the condition of the property?

The agent may refer the seller to the RECR, which states the seller will disclose defects of which the buyer is aware. “Aware” means to have notice or knowledge. If the seller legitimately does not know about any defects in the property, they can honestly answer “no” on the RECR. Often non-owner occupants or landlords will try to claim they know of no defects. This may be hard to defend when the tenants provide emails and correspondence about all the maintenance and repair requests about the property, which would fall into the definition of defect. 

If a seller mentions an as-is sale, does the listing agent still have to inspect? 

Yes. In all transactions, the agent has a duty to inspect the property prior to listing it and to ask the seller for a written statement of property condition, generally a RECR. If the seller refuses to complete a RECR, the licensee is still required to inspect and make disclosures of material adverse facts and information suggesting material adverse facts.

Do licensees have to make disclosures of material adverse facts if a property is being sold as is?

Yes. Once the seller provides a RECR, the licensee compares their observations and knowledge with the RECR. If there are inconsistencies or the licensee thinks the seller’s disclosures are incomplete or inaccurate, the licensee would make timely written disclosure of material adverse facts, as appropriate. This applies in all transactions; the term as is does not relieve the licensees of their inspection duties or disclosure duties. 

From the licensee’s standpoint, Wis. Admin. Code § REEB 24.07 requires that licensees perform reasonably competent and diligent property inspections and disclose material facts and potential adverse facts to the parties in writing. This is not excused or waived in as-is sales. In fact, when the buyer is purchasing as is, it is very important for the buyer to know the condition of the property. Generally, the buyer has expert inspections of the property as a condition of the offer to purchase, but this does not excuse the licensee from the duty to assure that all known material defects are disclosed in writing to the buyer.

Offer drafting 

The buyer’s offer has full inspection contingencies. The seller’s counter-offer states the property is being sold as is. The seller provided a RECR. Does this take away the buyer’s option to back out of the sale if the inspections show a major defect that was not disclosed on the RECR?

When the buyer is purchasing as is, it is very important for the buyer to learn as much as possible about the condition of the property. Consequently, the buyer may include testing and inspection contingencies in the offer. The inclusion of the term as is does not preclude the buyer from conducting testing and inspections per the contract. The parties will work through each of the inspection and testing contingencies on their merits. 

In summary, when a seller says, “as is,” determine why they have chosen to sell as is. Address that underlying issue on its merits and refer all parties to legal counsel as appropriate. 

Learn more about as-is transactions

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