Selling a Home As-Is; Seller, Buyer & Realtor Tips
Hello again, welcome or welcome back if this is your first visit to our company blog. I wanted to share with sellers (and also new agents) some of the finer points and truths about selling a home as-is and clear up some common misconceptions about liability. Listing agents do well to make sure property disclosure statements are updated in a timely manner as issues arise.
Selling an "As-Is" Property - Avoiding Law Suits
Just because a seller decides to list a home in "as-is" condition doesn't alleviate them from responsibility nor necessarily protect them from liability. Some sellers don't realize just because you have the home listed for sale in as-is condition doesn't mean you can't get sued by an upset buyer. Agents should understand Errors and Omissions Insurance doesn't cover fraud or gross negligence.
Realtors and brokerages can also be successfully sued in some circumstances over an as-is transaction; caution, knowledge and due diligence are warranted always.
Disclosure is Key
- Disclosure is the "magic shield" for listing agents and sellers in these type of transactions. I'm sure you've heard the phrase "Ignorance of the law is no excuse." It's similar in real estate sales, especially with as-is properties.
- In some cases, a seller may wish to list a property as-is, hoping some material defects will go unnoticed, even thinking once the deal is closed, because it was sold "as-is" the buyer will have no legal recourse and that is simply not the case. Agents should be particularly aware and on-guard with such sellers, lest they and their broker be dragged into court.
- From the sellers' point of view, the disclosure limits their liability. Should the buyer sue the seller for material items, the seller is covered if the item is listed on the disclosure statement. If the seller refuses to produce a seller disclosure statement, the seller is often admitting there is something wrong with the house that he or she prefers not to divulge.
- Bank repossession is handled differently: the buyer, after having an accepted offer will have to have his or her agent get permission from the bank, who owns the property. I cannot stress the importance of home inspections, especially for as-is properties.
- For homes with numerous or glaring defects, the seller's agent may suggest that the problems be remedied before the house is listed. The seller would still have to list the problems, but they would also indicate the date the problem was repaired or corrected. Very often repair work contains warranties or guarantees. This builds confidence and trust with the buyer.
- From the broker's point of view, the seller's disclosure helps to limit the liability of both listing and selling agents (the buyer's agent). The most important liability protection for real estate companies for the last two decades has been, in fact, the use of seller disclosure statements that identify needed improvements.
Sellers - Be Warned
Let's say you honestly filled out your property disclosure form, land a buyer who then has your property inspected and an issue comes to light that you were not aware of, let's say a hard to spot foundation issue and the deal falls apart. Let's say you get another buyer, willing to purchase your as-is home, but you as the seller fail to update the property disclosure and the buyer either foregoes inspections, or the inspector fails to spot this material defect. You could be successfully sued, even years later depending on your states statute of limitations.
In the court's eyes, you as the seller knew about the material defect, but did nothing to disclose it. Keep in mind, in real estate law suits the court can award restitution equal to the cost incurred by the winning party, but also impose very hefty punitive judgments intended to punish those found guilty of negligence or fraud.
Consider these actual law suits;
Bauer v. Giannis, (2005) Illinois Appellate Court
Bauer purchased an "as-is" home from the Giannises. The Giannises knowingly misrepresented in writing they were unaware of flooding problems in the basement on the required disclosure form. Four years after the purchase date, the Bauer's basement flooded.
The real estate sales contract contained the following provision:
'Purchaser acknowledges and represents that Purchaser and his representatives have personally examined the Property and Personal Property on at least six occasions and have had the Property professionally inspected. Purchaser is fully aware of the condition of the Property and accepts the Property in its 'As Is' and 'Where Is' condition, without any warranty or representation on the part of the Seller and Purchaser is fully satisfied with the condition of the Property.'
Bauer sued for fraud. The Giannises moved for and were denied summary judgment. Bauer moved for partial summary judgment declaring that the as-is clause was unenforceable as against public policy. The trial court granted Bauer's motion and were successful in suing.
Ware v. Uhl, 2002 Court of Appeals of Iowa
In this case, the question is - If a property is sold as-is, and the sellers make certain smaller repairs prior to closing, can buyers recover their costs pursuant to an express warranty for escalating costs related to the repairs after closing?
Prior to closing a residential sales contract, the sellers informed the buyers that there had been problems with the septic system in the past. In addition to the contract terms, the sellers gave the buyers a document styled AA residential property disclosure statement and a disclosure statement for property having an on-site wastewater treatment and disposal system.
The buyers sued, claiming that the sellers expressly warranted that the plumbing system was in 'working order.' The sellers admitted and disclosed that there was a leakage problem and agreed to make the necessary repairs. The repairs were ineffective and the leakage problem persisted. Ultimately, the considerable costs of repair were borne by the buyers after closing. The buyers prevailed in the trial court; the sellers appealed. The sellers argued that the property was sold as-is, subject only to remedying the smaller leakage problem they disclosed.
Held: Yes. The court, using the rules of contract construction, found that the intent of the parties was that the sellers were to provide a plumbing system in working condition." The express language of the contract overrode any intent on the sellers' part to sell the property as-is.
The initial repairs failed to satisfy the contractual obligation, and the sellers' responsibilities under the contract were not discharged at closing.
Calvente v. Levy, (2006) Supreme Court of New York
In this New York case the issue is whether the required disclosure statement survived the contract of sale which included an as-is provision.
Calvente entered into a contract to buy property owned by Levy. The contract stated that Calvente was purchasing the property in as-is condition. Pursuant to law, Levy delivered to Calvente a property disclosure statement prior to the signing of the contract. Levy answered question 30, 'Are there any flooding, drainage or grading problems that resulted in standing water on any portion of the property?' as 'No.' In fact, Levy had actual knowledge of a prior water leakage in the basement. After discovering the leaking basement, Calvente sued Levy. The trial court found that although the contract was as-is, Levy was required by law to disclose the defect and therefore awarded damages to Calvente. Levy appealed.
Held: Affirmed. The court held that the statute requiring disclosure does not prohibit a seller from selling property as-is. Regardless, the seller is required to accurately complete the disclosure and attach a copy to the offer to purchase and contract. In the disclosure, the seller is required to certify that the information is true to his actual knowledge. In this case, the statement signed by the seller included representations the seller knew at the time to be false. Because the seller willfully failed to disclose prior flooding problems, the buyer was entitled to recover actual damages.
Bottom Line - The statute requiring disclosure does not prohibit a seller from selling property as-is, however the seller is required to accurately complete the disclosure and attach a copy to the offer to purchase and contract.
- Sellers; fill out that disclosure form completely and honestly.
- Agents; make sure those property disclosure forms are complete, and don't fill them out yourself lest you be liable. Even if the seller cannot physically complete the form have them or witnesses sign and initial them. Additionally, update them in a timely manner to protect yourself and your seller-client as issues come to light.
- Buyers; never forgo inspections and know your rights.