An Oct. 9 Real Estate article incorrectly described Maryland and Virginia law regarding disclaimer statements signed by home sellers. If the seller in those states signs such a statement, he is stating that he makes no representations or warranties about the condition of the property, except as otherwise stated in the contract of sale. The District does not provide for such disclaimer statements. (Published 10/15/04)
By any measure, Tracey Longo has had a busy year: She has sold two houses and purchased a third.
How did Longo manage so many major transactions in so short a period of time? Two words: "as is."
Longo, who plans to move into her newly purchased Colonial house in Silver Spring soon, quickly sold two residences this year -- a rambler in Kensington that she and her sister had used for years as an investment property and a bungalow in the same town that served as Longo's home. Much of the credit goes, of course, to the area's hot real estate market, but she also believes that the sales were speedy in part because she marketed the properties in "as is" condition.
This meant that while Longo still was legally required to disclose all known defects in the two houses, buyers were on notice that she wasn't going to listen to any appeals to spend her own money renovating kitchens, updating bathrooms or replacing windows.
"I did put the words 'as is' in the homes' listings," Longo said. "I did a lot of work on these properties before putting them on the market. In the bungalow, for instance, I rehabbed it completely inside and out. I installed central air, and that's no easy feat in a three-story bungalow. Because I did all this work I didn't want to be nit-picked over little things. I didn't want a buyer, after I had already put in $30,000 to $45,000 on this house while I lived there, coming up to me and asking, 'Why is the sash on this blind not sitting correctly?' Fortunately, the market here bears as-is transactions at this point."
When Longo purchased her home in Silver Spring, she did so from a buyer who had also put the words "as is" in the listing. This never bothered her. Longo protected herself from expensive surprises by ordering a professional home inspection before sealing the sales contract.
In many real estate transactions, the inspector's report triggers a new round of negotiations over which repairs the seller is willing to make in order to bring the property into acceptable condition. With an as-is sale, however, the idea is that it's a take-it-or-leave-it proposition.
In this quick-moving home-sale market, more sellers are inserting the words "as is" in their home listings. At the same time, buyers are more willing to buy homes in as-is condition. And as long as these buyers include a contingency clause in the sales contract calling for a home inspection before the sale is complete, there is usually little problem.
"Sometimes the words 'as is' conjure up in a lot of people's mind that the place is run down, but that's not necessarily the case," said Charlie Miller, a real estate agent with the Bethesda Gateway office of Long & Foster. "Sometimes people sell a house in as-is condition because they inherited the house, or they are acting as a trustee or guardian of an estate. In those instances the house may be in wonderful shape but they just don't know enough about it to offer a warranty on it."
As an example, Miller points to a client whose aunt suffers from Alzheimer's disease and must move from her home. As the trustee, the niece is charged with selling the house. She has been to the house many times over the years, but doesn't know enough about the condition of the home's air conditioner or furnace to know how much life either of the appliances still has left. So she listed the home in as-is condition.
Legally, sellers are still required to tell buyers about defects of which they are aware, either through a detailed disclosure statement or through a disclaimer statement, allowed Virginia and Maryland but not the District.
Selling or buying a home in as-is condition, then, needn't be a gamble. People just need to take some simple steps to make sure they're not burned.
The biggest protection buyers have when considering an as-is house is the home inspection. A professional home inspector can uncover serious defects -- a roof that needs replacing, a sinking foundation, a basement that leaks -- that might cause a buyer to back out of the purchase.
The smart move is for a buyer to include a contingency clause in the sales contract stating that a sale can be broken if a home inspection uncovers serious defects. Jim Rooney, a home inspector and owner of Free State Home Inspections in Annapolis, recommends that buyers pass on a house, even if it seems like their dream home, if a seller won't agree to such a clause.
"You never know what you're going to find in a home. There can be sleeping elephants all throughout the house," Rooney said. "Even if a contract is written as-is the buyer would be wise to execute a home-inspection clause. Possibly, what the inspection finds could kill the deal."
However, in the hot market of recent years, buyers have been agreeing to waive their right to home inspections to make their offers more attractive to sellers.
Charlotte Walker, a real estate agent with Coldwell Banker Residential Brokerage in Potomac, has seen this trend. When buyers finally find homes they like, they are terrified that they will lose them to competing offers. Many of them skip the home inspection to get the deal closed as quickly as possible.
"We don't think that's the greatest thing to do," Walker said. "We try to discourage that. But it's hard sometimes in a seller's market like this to convince buyers. They really don't want to lose the homes they like."
Jim Tobin, a real estate agent with the Fairfax office of Re/Max Premier, has seen the same trend.
"Most buyers know how important it is to get an inspection. But in the last year or two, because of the bidding wars we've had over houses, some clients have lost homes because of the home-inspection clauses they've requested," Tobin said. "So in desperation some buyers are taking them out. They are willing to run the risk of later on finding a problem. It's a risky tradeoff."
But what about sellers? Does placing those words "as is" in a listing slow a home's sale? Does it cause buyers to pause, wondering what is wrong with a home?
Not really, say real estate pros.
Traditionally, to get the highest value for their homes, sellers would spruce up certain areas to generate the highest possible sales price. Owners, for example, might replace dark kitchen cabinets with light ones. They might install bright new carpeting throughout a home's first floor.
But in today's seller's market, such moves rarely make financial sense.
"In our market the way it is today, it is often the buyers who want to take a home in as-is condition," Tobin said. "If you have a real old kitchen, say, it almost doesn't pay to fix it up. It's better to market it as ready for renovation. The people who purchase the home are going to have their own ideas on how they want their kitchen to look. They might not like the renovations you make."
Sellers who list their homes in as-is condition need not even set the price lower because of it, real estate experts say.
"There really is no financial damage done by listing a home in as-is condition," said Miller. "Buyers are used to that now. And they know they can protect themselves by having a home inspection. If I'm a buyer, the words 'as is' don't throw me. I know I can inspect the property."
Rooney, the home inspector, says sellers shouldn't fret when buyers order an inspection. These buyers, he says, are just doing their job. Most times, the defects an inspector uncovers won't scuttle a deal. Usually major problems are the only ones that cause potential buyers to run from a home that they liked enough to make an offer on, Rooney said.
"I'll see a deal die when the repairs would cost, say, 10 percent of the home's listing price," Rooney said. "That's a big deal. That's a big investment."
Before buying her house in Silver Spring, Longo took this approach. The sellers of her home were retiring to Florida, and though they were selling the property as-is, Longo could see that they had taken good care of the house. Longo proved this to herself by having a home inspector tour the property. The inspector found no major damages.
"No one was trying to fool anyone," Longo said. "It was more to get rid of all the haggling, nit-picky type of things that went on before the seller's market took hold. There are unsavory characters selling homes. That is true. They may try to hide something. That's why I'd never buy a house before having an inspection. At least that way, if you know you're going to have to replace the roof you'll be able to plan your home maintenance."