As is House Purchases & Sales
- Adam Garrett
- Oct 21, 2022
- 18 min read
Updated: Jul 15
Above: My as-is HUD foreclosure purchase that is my rental property where I got a fantastic deal in part because it was being sold as is and other buyers didn't want it.
Selling As Is
Typically Sellers Shouldn't List for Sale As Is
Typically you shouldn't sell as is, because you'll typically be netting lower profits by selling as is than you would if selling after doing some work to the home and being willing to do more work should the buyer request reasonable repairs. That said, there are some exceptions where selling as is will be viable. As a buyer, sometimes it can be good to buy as is if you're willing to go through the hassle that a seller isn't in order to gain the profits that the seller loses because of their unwillingness or inability.
Problem 1 with selling as is: Lower Net Profits
Just like some sellers don't want to deal with the time or cost of fixing a property, buyers have some of the same feelings, but have less skin in the game than a seller does to even check to see what estimates would be involved, so often they'll overestimate work costs, stress involved, and time involved to be safe. While some inspectors provide estimates for costs within a home inspection, in SE VA, I've found that most do not. The main problem with selling as is will be lower net profits. An "as is" home is a distressed property. Many buyers are unwilling to even consider distressed properties or fixer uppers. By narrowing your buyer pool to investors and those that are willing to go through more hassle, you encounter a lot more buyers looking to get a significant discount in order for them to go through the hassle of getting it fixed themself when the seller doesn't want to or is incapable of doing so.
Problem 2 with selling as is: Repair Requests & Price Reduction Requests After Contract Ratification
In addition to lower net profits, in some cases, a seller may list a home for sale without doing work on a home, only for a buyer, after home inspection or within the offer itself, to then request the very work that their listing agent would have suggested had the seller been willing to do the work or pay for the work prior to listing. The buyer could request work or request a price reduction if they include a home inspection contingency clause. Sometimes a home is listed as is, or an offer is made as is, but while you would think that the buyer really should treat "as is" as something where they don't request repairs, that's not always the case. Even if they don't request repairs, I've represented buyers before where our inspection revealed significant hidden problems, and we got $10k in price reduction from the seller. Also of note, I don't practice dual agency where I represent buyer and seller. In cases where the seller finds issues after home inspection that the seller is unwilling to do or unwilling to reduce the price for, the buyer may walk from the contract, leading to my next point.
Problem 3 with selling as is: Higher Probability of Contract Fall Through (Which Also Often Leads to a Lower Net)
The buyers won't always give sellers the opportunity to remediate problems, and sometimes walk from contracts rather than requesting repairs after seeing substantial issues that were not disclosed by the seller. If the buyer walks from the contract, at least in Virginia, that seller should disclose to future buyers what material adverse facts stopped the sale from occurring. The second time it goes under contract, it could be for a difference significantly greater than the cost of the repairs had the seller been willing to do them.
Fixer uppers have a much higher likelihood than homes that are in good shape for the contract falling through due to home inspection, & contract fall through is costly. One of the main reasons why homes that go back on the market don't sell for as much is that the hottest time on the market for a home is when it's brand new on the market. There is a stigma with homes that go back on the market; buyers wonder why it went back on the market and wonder about how honest the listing agent/seller is being about why if they provide an explanation why. The buyers have good reason to be suspect. I've seen where a listing agent stated that a home sale fell through at "no fault of the seller", only to find with more probing questions that the actual reason it fell through is because of a bad home inspection where the seller didn't have a chance to see respond to requested repairs because the buyer went to terminate immediately after inspection rather than trying to haggle them for repairs to be completed.
I've also seen where, 2nd time on the market after contract fall through, a home sold for around $13,000 less than the original contract, with the first buyer requesting no repairs while the 2nd buyer requested repairs. $13000 isn't even including the repair cost of that 2nd contract. For example, I saw where a property went under contract for $362k with $10k in closing cost assistance within the first week of it hitting the market. The contract fell through (not due to repairs either; the property was in good shape & had appraised fine) due to the buyer being in breach of contract etc. After some price reductions and time sitting on the market, it eventually sold for $337,500.
In rare cases, sellers are best suited to sell a home without any repairs, as is, & with just some cleanup/staging.
For instance, that would typically be the case when I list a home for a seller who is short on cash, selling a short sale, works overtime, and who is no longer in town. Even in that case though, cleaning is recommended if the seller &/or friends/family are able to come in town and do some DIY cleaning, lawn care, maintenance, etc. as long as the quality of the work done wouldn't make a situation worse. An appraiser (such as for a bank) is more likely to see past a dirty home than a buyer.
One of the biggest issues I find with sellers wanting to sell a home "as is" derives from inheritance where they don't want to deal with the hassle of all needing to be in agreement on repairs and are splitting proceeds between multiple parties, but if your family doesn't tend to argue that much, it might not be a bad idea, while a family that already has a number of interpersonal issues may not want to stir up the pot.
Funding Repairs as a Seller
One of the biggest issues I find with sellers wanting to sell as is derives from sellers who don't have much cash on hand, especially if they have poor credit. Adam in some cases can even help sellers with their credit before a sale, & provides resources on that page to get help from others if they'd prefer.
I have a separate article dedicated to the topic, as there are many options that sellers may not be aware of even in that situation to fund their repairs and gain higher net profits.
Possibilities include but are not limited to:
0% interest credit cards
personal loans
home equity lines of credit
Contractors willing to take the funds at closing (typically for a fee)
Should You Sell As Is to an Off Market Buyer? (Typically No)
Typically you should not sell as is to an off-market buyer and will net higher proceeds if you sell on the market as is. If you get an as-is off-market offer, or have a buyer who wants to buy as is off market, it's best to list your home with an agent with an exclusion clause for that offer. That said, I don't recommend letting the off-market buyer go into your home, since they often use pressure sales tactics that include deadlines, and many sellers fall under pressure to those deadlines. Even if they don't include a deadline, buyers will often not wait long after an offer before withdrawing it.
Related:
Who Should Sell As Is
You’re performing a short sale (though it's still best to at least clean the place up, especially if you can get an appraisal from your lender immediately prior to doing so before listing the home)
You have a much higher preference for minimizing your hassle than getting the highest net profits, knowing that “as is” costs many 10’s of thousands in net losses, and knowing that any time you spend (whether hiring out labor, especially for those who are not handy or who have high salaries, or in some cases, doing the labor yourself, especially for those without high salaries and/or who are handy) is often much more valuable than what one can make at work.
You don’t have the money to do any repairs whatsoever, don’t have the credit to take a loan for repairs, don’t have the equity to take a loan from my company to be paid back at the time of sale, and have exhausted other options such as those mentioned here: https://www.adambgarrett.com/repairs-renovations-paid-at-closing
Does Adam Help Sellers Sell As Is?
While Adam doesn't typically recommend selling as is, if you are looking to sell as is, Adam's ability to market your home will typically be even more superior to that of other agents vs homes that are in good shape. Often agents are more apt to cut corners on as-is homes. It's much more likely to only see 1 picture on as-is homes, for instance, than a standard sale. With as-is homes, Adam still does his standard marketing like aerials, area photos, Matterport virtual tours, etc.
How Listening to My Advice to Not Sell As Is Has Helped Sellers Get Higher Net Prices
There are some sellers that listen to my advice about what to do to a home much more so than others. I like to eliminate as many cost effective negatives as I can when going through a home with a seller if they are willing to not sell as is, & I've seen fantastic results from sales prices at times because of it. I have a keen eye for the details, and on at least one occasion, I've pointed out to my client more legitimate home defects than a home inspector at the same property. I've seen where sellers listen to a lot of my advice, and in doing so, the homes get in multiple offer scenarios & eventually go under contract & sell for more than comparable properties, even if all or most of the improvements that they make are DIY since they have some skill to do them well. In those scenarios, I have sometimes seen high guarantees above appraisal, including situations where all of that large above appraisal guarantee was utilized because the appraiser couldn't justify the price that the buyer was willing to pay.
Selling Almost As Is: Better than Listing for Sale As Is
If you plan to not do any work to a house, you are typically better off not including the term "as is". That language is actually used in some searches by investor buyers who are looking for properties to low ball, making many offers at a time and seeing where one sticks. Conversely, there are some owner occupant buyers where they rule out in their search criteria any properties that mention "as is", so even if it's only a small shed that you're talking about, the same buyer might not even see your home because of that language.
One exception to this rule is that it is typically not true with short sales and many foreclosures, where you are required to sell "as is" often by the bank or other institution involved. Also, if you know that there are significant problems that you don't want to go into detail on disclosing, stating that something like a shed is being sold "as is" does reduce some disclosure liability by acknowledging that it has issues.
Buying As Is
Should You Buy As Is? Maybe
In most cases, I don't recommend selling as is, but for some buyers, purchasing as is can yield substantial savings if the buyers are willing to go through the hassle that some sellers aren't prior to listing. When I bought my first home, I was able to pocket significant equity after repairs because I was willing to go through the hassle of repairs, even though most of it was hired out, which other buyers were unwilling to do. Flippers make their money in part because of the unwillingness of many buyers to do repairs.
As is sales (especially when the seller is requesting as is) are best for buyers who are handy, who have some time on their hands, who don’t make too much money per hr for the time to be better spent working (or who can’t exceed a certain number of hrs at work but still have extra time). For instance, if you make $50/hr & can work more if desired in your main job, it’s better to pay someone $40/hr to do a job well (I’ve seen jobs botched pretty badly when someone too cheap is hired & in some cases with DIY where it can cost a lot more time & $ to redo the job) on your house than for you to do it yourself. Even those who aren’t handy at all may make an offer as-is to be more competitive, knowing that they can hire contractors to get work done gradually over time or immediately upon possession.
They are also good for those who can get great deals from those who are contractors (or very handy) including through personal connections or who otherwise would want to pay for repairs/renovations, whether at once or slowly over time. For instance, if you have a family of contractors who would give you a heavy discount to help you out, an as-is sale can be good. If paying for contractors over time, keep in mind that some as-is sales will often have items that should be taken care of immediately due to being safety hazards or items that will get worse over time if not taken care of immediately (i.e. a leaky roof producing mold).
Mortgage Loan Requirements
If purchasing a property with a mortgage, your lender has certain requirements that need to be met in order to provide a mortgage on the property. These vary by lender and by loan type. The lender may request that something be repaired prior to closing.
Some examples include:
Wood destroying insect inspection where requirements depend on geographic location, loan type, lender, & what the appraiser sees
Settlement
Infestation
Other "Physical Deficiencies That Affect Safety, Soundness, or Structural Integrity of the Subject Property" (quoted from Fannie Mae)
Mortgage loan requirements by loan type:
Mortgages & Wood-Destroying Insect Inspection Requirements
One of the most common requirements VA mortgage loans in Virginia and many other states is getting a wood-destroying insect inspection. If you don't get that on a garage, the appraiser may not factor the garage into the appraised value. Other loans in VA don't tend to have this issue.
Per the US Department of Veterans Affairs, "Wood-destroying insect information is required for the entire state of:
Alabama, Arizona, Arkansas, California, Connecticut, Delaware, The District of Columbia, Florida, Georgia, Hawaii, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Mississippi, Missouri, New Jersey, New Mexico, North Carolina, Ohio, Oklahoma, Puerto Rico, Rhode Island, South Carolina, Tennessee, Texas, U.S. Virgin Islands, Virginia, West Virginia, Guam, American Samoa, and Commonwealth of the Northern Mariana Islands" In addition, certain localities in Colorado, Iowa, Nebraska, Nevada, New York, Pennsylvania, Utah, & Wisconsin require it.
Per HUD, "FHA requires (wood destroying insect) inspection only if there is evidence of active infestation, if mandated by the state or local jurisdiction, if customary to the area, or at the lender's discretion"
Under Fannie Mae guidelines, one of the most common conventional loan varieties, "If the appraisal indicates evidence of infestation (such as, wood-boring insects), dampness, or abnormal settlement, the appraisal must comment on the effect on the value and marketability of the subject property. The lender must either provide satisfactory evidence that the condition was corrected or submit a professionally prepared report indicating, based on an inspection of the property, that the condition does not pose any threat of structural damage to the improvements."
Insurance Requirements
Like mortgage companies, insurance companies have certain minimum requirements to insure a property, and also may request that something be repaired or changed prior to insuring your property.
Items like an old or patched-up roof, missing siding, polybutylene pipes, past history of insurance claims on the property, your credit score, flood zones, hurricane evacuation zones, high crime, fireplaces, pools, playsets, trampolines, hot tubs, & more can limit your insurance options or raise the cost of insurance.
In some cases, an association may cover certain insurance costs that directly impact your property or that raise your rates. Even if you're not in a flood zone, if part of your condominium complex is, your rates may be higher than they would be otherwise.
Will the Seller do Any Repairs? Sometimes, But if At All, These Are Limited
With an "as is" sale, often the seller will be unwilling to do anything that the bank doesn’t require, and in some cases nothing that the bank requires either, where you would need to come out of pocket through an escrow holdback or use a renovation loan mortgage to cover the repairs, keeping in mind that some lenders/banks don’t do either. Often entire repair request addendums will be rejected.
With short sales, even if the lender requires it, the seller will more often than not reject the repair request.
While a laundry list of repairs might be possible with a typical offer if there are many hidden defects that come out in the home inspection, that's not the case with an as-is offer, and if one were to present that after making the offer "as is", it would be disingenuous. Your highest chances of items to be covered in a repair request on an as-is offer are items that would be flagged by an appraiser or termite & moisture inspector IF the seller is willing to do anything about them, and even then they may wait for the termite/moisture inspector or appraiser to flag them & refuse to deal with them without that. Other items that would make a home uninhabitable or a major safety hazard for an owner-occupant purchaser that isn't obvious at the time of offer (i.e. major structural damage invisible unless you're in the crawl space or black mold that was painted over that later comes out) can sometimes be arranged. In other cases, an active problem that only gets worse rapidly if left unrepaired (i.e. a major leak that wasn't obvious that the seller wasn't aware of) might be agreed to.
My Example of Purchasing as is
While I typically don't recommend that sellers sell as is, with buyers I represent, it's a different story, & my first home purchase was a fixer-upper where I made significant profits because of it. In February of 2017, I purchased the lowest price home in a neighborhood, that was selling as is and needed work, for $115k. It was a 3 bed, 2 bath property built in 1992 with a garage in an area with low crime according to the Trulia crime map at the time & with no flood insurance required. I used a conventional renovation loan putting 5% down. The after-repair cost of the home at closing was $140,726. The after-repair appraisal was $190k before closing, and once repairs were completed, that appraisal was confirmed.
How I saved more via seller concessions, a program to reduce home cost, DIY repairs, PMI removal, & interest rate reduction
The seller paid 3% of my closing costs, and I used a program to reduce home cost to cover $4,000 more. I intentionally avoided other programs to rent it out, despite some others saving more money, because unlike some of the higher paying programs, the program I used didn't have too many restrictions on me renting it out & even renting out rooms in it in the not too distant future after purchasing it. I paid out of pocket for some additional things I wanted to do to the home (i.e. blinds, but less than 10% of total reno costs) because I wanted to do some things DIY to save more costs. I was able to get the PMI removed 2 years after purchase, lowering my payments. After the interest rates nationwide were lowered, after it was rented out, I reduced the mortgage interest rate from 4.5% to less than 3%, and from a 30 year loan to a 15 year loan. I also gradually increased the rent over time.
Funding Repairs as a Buyer
There are a number of ways to fund repairs as a buyer if you don't have the cash to do it all at time of closing:
having the seller do repairs required by the lender (although in most cases, the seller won't with short sales)
escrow holdbacks for repairs required by mortgage lenders that the seller is unwilling to do (if allowed by your institution)
slowly making the repairs after purchase in cash, whether DIY or contracted out
using other strategies mentioned in my article for financing repairs for sellers that aren't dependent on closing for repairs critical for habitability or that would be safety hazards if left undone, i.e. a 0% APR credit card that would be paid off before any interest accrued.
Buying or Selling As Is:
Most Common Mistakes w/ As Is Offers:
"No Repairs to be Requested" Language
Sometimes when I represent a seller I see as is language and then the language that “no repairs to be requested”, but I don’t recommend that language for buyers or sellers. While as is sales certainly shouldn't be followed by a long list of repair requests (though I have seen it when representing a seller), there are a few problems with including the phrase “no repairs to be requested” in an as-is offer or with countering as a seller with that language:
What that literally means is that if the buyer's home insurance, appraiser, or termite/moisture inspector says that there is a problem that requires remediation to close, no matter how big or small, if the buyer's lender doesn't allow escrow holdbacks, or if the buyer doesn't have the $ to afford the escrow holdback, or if an escrow holdback otherwise isn't a viable option to remediate the situation, the only option for the buyer is to walk away from the transaction.
“No repairs to be requested” sometimes means that a price reduction or closing cost assistance are the only alternatives to the buyer walking, but there isn't always time within the scope of the home inspection contingency for the buyer to get estimates, and sometimes a buyer unfamiliar with the area won't be in as good of a position as the seller to secure those estimates, leaving the potential price tags of those issues big unknowns where the buyer may need to assume the worst when considering whether to move forward, walk, or request a price reduction or closing cost assistance in lieu of repairs.
Most lenders restrict closing cost assistance from the seller, depending on the loan type, so if no repairs are to be requested, and if the buyer is already maxing out their CCA threshold, the buyer's only options may be to walk or get a price reduction, and a buyer may not be able to afford the repairs from a price reduction if they don't have the capital for it & if they don't want to pursue alternatives.
Often a buyer would prefer to purchase an at least semi “move in ready” home, and the absence of the option for any repairs may eliminate that possibility. If something should have been obvious, the buyer should have no expectation of the seller doing anything about it, but if something wasn't obvious, and is a major defect impacting habitability or value for an owner-occupant purchaser, it could be a different story.
"For Informational Purposes Only" Language
When language is written into a contract conflicts with contractual language, the language that has been added to the contract is supposed to override the default template-based language. Taken literally, "for informational purposes only" means that the home inspection "contingency" isn't really a contingency. It's to be done, with no recourse for the buyer to walk or to request a critical habitability threatening hidden repair need.
Related:
About the Author: Adam Garrett - 3rd Generation REALTOR®
Adam is the 3rd generation in a line of award-winning real estate agents serving SE VA. He has served full time at Garrett Realty Partners since May 2014 when he joined the marketing department before transitioning to full-time sales to assist buyers and sellers in February 2015. He believes that an educated buyer or seller makes the best decisions, & is dedicated to helping with that both digitally & on-site physically for buyers & sellers. He's also available for referrals to real estate agents around the globe. In several capacities, his resources & direct offerings for assisting sellers & assisting buyers are either unmatched or are top 1% for the SE VA area, and in some cases, nationwide. Not stopping after closing, he also provides information for tenants, landlords, & homeowners.
Related for Buyers:
Related for Sellers:
While Adam can refer buyers and sellers elsewhere, Adam’s direct coverage includes most of SE VA including Hampton Roads (VA Peninsula, Southside, & Middle Peninsula), the Northern Neck, & Greater Richmond.
Adam's Coverage Map with Adam's 5 Multiple Listing Services highlighted in orange & areas without good MLS coverage excluded:
Related for Agents
Additional Related
Comments