As-Is Clauses in Real Estate Sale Contracts

In the local newspaper, Lee saw an advertisement for a cottage on a small island in the bay near her home. It sounded perfect. Although the cottage was built in the 1930s, the owner indicated in the advertisement that the cottage had been extensively renovated in the last five years. The updates included a new kitchen, central air conditioning and upgraded electrical wiring. The cottage was listed as for sale by owner. Rita noticed that the advertisement indicated that the owner was selling the cottage in “as is” condition. Rita wondered exactly what this meant.

More and more sellers are listing there properties for sale “as is.” What does this mean to a prospective buyer? When a seller indicates that a property is being sold “as is,” the seller is essentially offering the property on a take-it-or-leave-it basis.

Duty to Disclose

However, even with an “as is” clause included in the listing and/or real estate sale contract, a seller is not relieved from the duty of disclosing all known defects in the home. For instance, if the seller knows that substandard electrical wiring was used in the home and that the electrical wiring does not serve the purpose for which it was installed or presents a safety hazard, the seller has a duty to disclose such information to a potential buyer.

Why would a seller sell a property in “as is” condition? It may be that the seller wants to avoid a lengthy process of arguing with potential buyers over the necessity of small repairs before closing. It also may be that the seller does not know much about the property. For instance, a seller who inherited a property may know general information about a property, but lack specific information on important details. Lastly, in a real estate market where demand is very high, it may be that buyers will be less likely to balk at the prospect of buying a property listed for sale “as is.”

For a buyer interested in a property offered for sale “as-is” one means of avoiding expensive surprises is to make the completion of the sale contingent upon a home inspection. Such a contingency clause would provide that the buyer could break the real estate sale contract in the event the home inspection reveals serious problems. The purpose of the home inspection is to uncover large, expensive problems, such as defective plumbing, a roof that needs to be replaced, or structural defects. With a thorough inspection by a competent home inspector, a buyer can rest assured that he is not taking any unnecessary risks in purchasing a property “as is.”