Buying 'As Is': A Deal Worth the Risk?
You Can Save Money, but Be Ready for Repairs

By Terri Rupar
Washington Post Staff Writer
Saturday, July 25, 2009

Take it or leave it, the two small words say.

When a seller lists a home "as is," it means he can't or won't negotiate with the buyer over any fixes or credits. The buyer can get an inspection and make an effort to know what problems there might be, but she's agreeing to take it without repairs.

Just about everything needed repairs in Mark Mueller and Charles Martinez's Northwest Washington house when they bought it in August to rehab it and make it their home. The four-story house in Bloomingdale had been gutted, its staircase, appliances and cabinets ripped out, leaving holes in the floor. It was sold "as is" by a developer who wanted to walk away, said Mueller, 42, who manages clinical research. The lack of things that could break worked in his favor, he thought. "We had the really great advantage of having it gutted, where we didn't have anything hidden," he said.

The standard local sales contracts say appliances; heating, cooling, plumbing and electrical systems and equipment; and smoke and heat detectors must be in "normal working order" when a house is sold. Art Konopka, a real estate lawyer in the District, said that, legally, it means only that the refrigerator cools food and the freezer freezes water, not that the appliances are pristine and free of bumps and wheezes. So in a typical sale, if one of those systems is not in normal working order, the seller has to fix it. Buyers can negotiate to get sellers to make other repairs, as well.

But if a seller adds the "as is" clause to the contract and the buyer agrees to it, nothing except the smoke detectors, which are required by local law, needs to work properly.

"They're saying, 'Come get it, come look at it,' but under the contract, I'm not required to repair anything," said real estate agent Adrian Hunnings.

Although Mueller and Martinez, 30, a registered nurse, had a contractor walk through the house before the contract closed, they did not order a home inspection. And although they have had no major surprises in the renovations -- other than old newspapers, coin pouches and letters falling out of ceilings and walls -- real estate agents and lawyers still recommend that buyers get an inspection.

"Generally, there's more risk associated with an 'as is' purchase, so it requires greater due diligence, greater inspection," said Stuart D. Kaplow, a real estate lawyer in Towson, Md. "But it may not mean there's anything more wrong with the property."

With an "as is" property, if problems are found during the inspection, the buyer can walk away from the deal within an allotted amount of time, as specified by the contract.

These days, owners of homes listed "as is" are often banks, which have taken them back through foreclosure, or distressed owners trying to achieve a "short sale" for an amount less than what they owe on the mortgage.

Glen Baird, the principal broker at Realty in Fairfax, said sellers often list homes "as is" because they don't want to have to come up with $5,000 or $10,000 to fix problems they know about -- particularly termite issues, he said.

If sellers know of something wrong with the property that would not be found in a normal inspection, they do need to disclose the defects. Not disclosing them could be fraud, Konopka said.

But bank-owned properties could have been vacant for months. Although a homeowner might know that the basement leaks, the bank probably wouldn't. And that means the buyer wouldn't know, either.

"There's a slightly added risk factor there," Hunnings said.

However, not all buyers face a take-it-or-leave-it deal when buying foreclosures. David Sunlin, senior vice president in charge of bank-owned properties for Bank of America, said his company doesn't necessarily sell its homes in "as is" condition.

"We make a conscious effort to try to bring all properties up to what we consider to be neighborhood standards," Sunlin said. He added that they may negotiate with buyers over closing costs and repairs.

That helps the bank get a price that's closer to market value, he said. Bank of America also complies with all state disclosure laws, Sunlin said, though he acknowledged that the company doesn't have as much opportunity to know about problems with homes as an owner-occupant might.

Laurent Bernard bought an "as is" foreclosed property in Centreville this month to turn into a rental. He said that although there's work to be done, there haven't been any surprises from the inspection or subsequently. The air conditioning was in bad shape, a skylight was leaking and the floors had to be redone, but his first purchase of an "as is" property is going smoothly so far. Because he took on the added risk, Bernard said, he got a deal, paying about $200,000 when the value on the tax record was $270,000.

"The market was interesting for us," he said. "The price of the house was less than market value."

Find out as much as you can before buying an "as is" property, real estate agents and lawyers advise. Ask neighbors about the home, and try to find out whether they know of any problems. Be particularly cautious of anything that looks odd or poorly maintained.

One thing that made Mueller and Martinez feel better when buying their "as is" home was a knowledgeable neighbor, who knew when the roof had been replaced, for example.

They paid $360,000 for the home and got a $300,000 construction loan. Work, which included exposing brick walls, adding cabinets and bath fixtures, underpinning the foundation and adding a deck to the top floor, is expected to be done in the next few weeks.

Carol McGee Taylor, a real estate agent in Mitchellville, said sometimes buyers of "as is" homes are disappointed once they get in and discover problems. She suggests that they buy warranties covering appliances and major systems.

"Be prepared for things that are going to happen to the house," she said.

District-based agent Suzanne Des Marais, who helped Mueller and Martinez buy their house, cautioned buyers against shopping for "as is" properties solely online because "as is" could mean just about anything.

"It could be from the range of 'you could move in and live in it once you turn the utilities on' to 'you need to completely gut and renovate it,' " she said.

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