Buying and Selling Real Estate “As Is” - What You Should Consider Before Signing
The "as is" clause in real property purchase agreements is a crucial provision that significantly impacts the rights and responsibilities of both buyers and sellers. Often viewed as a double-edged sword, this clause can provide flexibility and protection for sellers while posing potential risks for buyers. This article explores the implications of the "as is" clause and highlights what both parties should carefully consider when entering into real estate transactions.
Understanding the "As Is" Clause
The "as is" clause essentially means that the property is being sold in its current condition, with all its faults and imperfections. It implies that the seller makes no warranties or representations regarding the property's condition and that the buyer accepts the property with all its existing flaws. This clause can be beneficial for sellers because it limits their liability for defects or issues with the property, but it also places the burden of due diligence squarely on the buyer.
In Michigan, the “as is” clause in a contract for the sale of a home shields the seller from liability for unknown defects, even if the defect should have been reasonably discovered by conducting an inspection. However, more recent caselaw has shown that Sellers may be held liable for fraudulent misrepresentations and for defects if they reasonably should have known of them (See Pilcher v. Benoit).
Buyer's Considerations
Inspections: One of the critical aspects for buyers in an "as is" transaction is conducting thorough inspections. Buyers should invest in professional inspections of the property to identify any hidden defects or issues. This includes inspections for structural integrity, plumbing (including sewer or septic cameraing), electrical systems, and environmental hazards. Buyers should insist on the right to conduct inspections and negotiate repairs or a reduction in the purchase price if significant issues are discovered.
Review of Disclosures: Even with an "as is" clause, sellers are typically required to disclose known material defects or issues with the property. Buyers should carefully review these disclosures and seek clarification on any items that are not clear. It is possible that items may have been missed, and a thorough reading of the Seller’s Disclosure is the best way to determine what defects the Seller was aware of. If a seller knowingly withholds information or provides false disclosures, legal remedies may be available to the buyer.
Consider the Risk Tolerance: Buyers should assess their risk tolerance when entering into an "as is" agreement. They should be prepared to assume responsibility for any necessary repairs or renovations and factor these costs into their budget.
Seller's Considerations
Accurate Disclosures: Sellers should provide accurate and comprehensive disclosures about the property's condition, even in an "as is" sale. Failure to do so can lead to legal repercussions. It is in the seller's best interest to be transparent about any known issues to avoid potential disputes.
Consider Pricing: Sellers may use the "as is" clause to justify a higher asking price, as they are absolving themselves of the responsibility to make repairs. However, it is essential to strike a balance between setting a competitive price and attracting potential buyers.
Legal Protections: Sellers should ensure that their "as is" clause is properly drafted and in compliance with state and local laws. Consulting with an experienced real estate attorney licensed in you state can help sellers safeguard their interests.
Conclusion
The "as is" clause in real property purchase agreements can be a valuable tool for both buyers and sellers when used judiciously. Buyers must conduct due diligence through inspections and careful review of disclosures to protect their interests. Sellers, on the other hand, should provide accurate disclosures and seek legal guidance to draft a robust "as is" clause. Ultimately, transparency, communication, and a thorough understanding of this clause are essential for a successful real estate transaction that satisfies both parties.
This blog is for informational purposes only. It is not intended as legal advice. In the event you would like to speak with an attorney about your case Contact Us to schedule a consultation.
