"As Is" Misconceptions

Realtor, Layman Definitions

To home sellers, "As is" usually means that they're not going to do any updating or staging to get ready for market.

So, the dated carpet, scuffed hardwood floors, and out-of-fashion interior paint . . . are going to remain dated, scuffed, and out-of-fashion.

All fine, by the way -- as long as the price reflects those things.

Realtor Definition

By contrast, "As is" to Realtors means something entirely different.

Namely, that the Seller is waiving the disclosure requirements, and that the Buyer is assuming responsibility for any and all needed repairs -- of which there are usually several (if the Seller knows of material problems, they're still obliged to tell Buyers).

That's in addition to the Buyer assuming responsibility for any items ("repair or replace") required by the city inspection, if the municipality has one.

To take the risk, time, and money to address these problems, Buyers understandably expect a hefty discount.

Guilt by Association

Which is why Sellers whose homes are dated but are otherwise in good repair are usually ill-advised to sell "As is."

Instead, it's almost always in their interest to tackle any minor repairs, complete the Minnesota Seller's Disclosure . . . . and then let the home's condition speak for itself, without the stigma of selling "As is."

P.S.: selling a perfectly good (but dated) home "As is" is like electing to take a college course "Pass/Fail" when you would have gotten an "A-" (something I actually did years ago, which says more about the (fluffy) course than it does about me).

Most Important Question on Seller's Disclosure?

Sellers Who Don't Know the Condition of their Homes

What's the most important question on the Seller's Disclosure? (in Minnesota, a 9 page, single-spaced document with perhaps over 100 of them)

At least in my opinion, the one asking whether the owner has continuously lived in the home the last 12 months.

That's because the answer to that colors all the other answers.

Legal Standard

Critically, the responses on the form are to the best of the owner's knowledge; if they've spent 9 of the last 12 months at their Sun Belt condo, they may not know that the roof has sprung a leak, there was water in the basement after a particularly heavy rain, or that the fridge's compressor is suspect.

Of course, a good Buyer's inspection should reveal all those things.

But if they don't, and the Buyer is adamant that the Seller's disclosure was deficient, the legal standard for recovery is proving that the owner knew or should have known about the problem.

Exhibit A in the owner's defense to any arbitration action or lawsuit is likely to be the line in the Seller's disclosure indicating that the owner hasn't continuously occupied the home the last 12 months.

P.S.: Of course, an owner who's truly unaware of the condition of the property -- say, because they've rented it for several years -- is better advised to tell Buyers that, and either sell "as is," or pay for a third party inspection.

Sold! . . . Not Sold! . . . Sold! . .

Back on the Market Twice (in 10 days);

Third Time's the Charm?

The image I have in my head for this St. Louis Park foreclosure is a traffic light, alternately blinking green, then red, then green, etc.

That's because in less than 2 weeks on the market, it's already gone "Pending" twice, and each time has quickly come back on the market.

What's going on?

Be Careful What You Bid For

Given the price, $89.9k, location (just Southeast of 394 and 100), and the fact that it's a foreclosure, you'd certainly speculate that an overeager Buyer won a (presumed) bidding war, then either couldn't perform financially, or, re-did their math after carefully going through the home -- I did last week, and it's a total mess -- and reconsidered.

After all, foreclosure Buyers have been known to bid first, and do their homework second -- if and when they actually get the property.

It's also the case that sometimes condition is irrelevant, because the home is a tear-down. However, given the limited upside on the immediate block, I don't see that happening here.

Yet another possibility is that the bank dropped some bomb on the Buyer in the custom contracts it routinely substitutes for the standard Minnesota forms everyone else uses.

Possible, but less likely given that banks typically sell "As is," and provide no disclosure whatsoever.

So which of the above is it?

To paraphrase that old commercial for a hair color product ("only your hairdresser knows for sure"), in this case, only the listing agent knows for sure.

Bank Foreclosure "Gotcha's" :)

"Inspect All You Want" (They Said)

Welcome to the Hotel California
Such a lovely place, such a lovely face
They livin' it up at the Hotel California
What a nice surprise (what a nice surprise) bring your alibis

Mirrors on the ceiling, the pink champagne on ice
And she said we are all just prisoners here of our own device
And in the master's chambers, they gathered for the feast
They stab it with their steely knives but they just can't kill the
beast

Last thing I remember I was running for the door
I had to find the passage back to the place I was before
Relax said the nightman We are programmed to receive
You can check out anytime you like but you can never leave

--"Hotel California" lyrics; The Eagles

While it's still fresh, I thought I'd start a collection of favorite "gotcha" clauses in bank foreclosure contracts that I've run into recently.

Actually, "gotcha" would suggest purposeful intention; what often seems to be going on is that . . . no one's home -- in every sense of the word.

Examples:

--One size fits all. Once upon a time, Target sold mittens in its Southern California stores. Today, lenders with foreclosures in Florida -- where defective Chinese dry wall has been a big problem -- are requiring disclaimer language in Minnesota, where no one has heard of the issue.

--"Inspect all you want." Another bank included an Inspection Contingency that looked like the standard Minnesota form up until the last sentence; that's where the Buyer waived its right to back out of the deal, regardless of what the inspection revealed.

Ummm . . . that would be the whole point of the inspection, especially one that turns up major issues that the bank won't address because it's selling the property "As Is."

Even if the property is being sold "As Is" -- make that, especially when the property is being sold "As Is," with no disclosures -- Buyers want to inspect to determine the property's true condition.

--The Bank can get out, for any reason. The flip side of locking the Buyer in is letting the bank out.

Another bank contract included a clause on the last line of a 28 page contract allowing the bank to cancel the deal, at any time, for any reason.

Such a contract really isn't a contract, it's more accurately a "memorandum of understanding."

By contrast, a contract imposes reciprocal rights and obligations, and is binding upon the parties.

--Bank language supersedes Buyer's language.

Every bank deal I've seen so far (more than two dozen) starts with the bank tossing out the standard Minnesota real estate forms, and substituting its own custom, undefined contractual language.

Typically, the first sentence of the bank's substitute forms states that the "bank's forms supersede the Buyer's, and wherever there's a conflict, the bank's forms govern."

So, not only are the bank's contracts often full of ambiguous, undefined language -- they trump the standard Minnesota contracts where there's a conflict.

--"Knock Yourself Out" Inspection clauses. Another variant of the "modified" Inspection clause I've seen allows the Buyer to inspect, but makes them responsible for de-winterizing the property, re-winterizing the property, and paying for any damage that doing so causes.

So, theoretically, a Buyer could arrange to have the water turned on, have the place flood because the pipes are busted . . . then be liable for the damage! (even though they decide not to buy the home).

Bottom line(s): a) foreclosures aren't for novices; and b) the price had better be attractive enough to compensate for all the foregoing risks and hassles.

Chinese Drywall in Minnesota?

New Bank Disclaimer

Chinese drywall may not have made its way to Minnesota yet -- but Chinese dry wall disclosures have.

I'm currently representing a Buyer interested in a bank-owned property where, in addition to the usual "As Is" disclaimers, there's a separate disclaimer addressing Chinese drywall.

If you didn't know, tainted Chinese drywall has popped up as a major issue in other markets, notably Florida and Southern California.

Which may explain why the bank in this case is requiring the drywall disclosure: it's based in Southern California, where it has undoubtedly run into the issue.

Just like Target -- once upon a time -- stocked its Southern California stores with the same gloves and antifreeze that it sold in Minnesota, many national banks have a "one size fits all" policy regarding the legal forms they use to dispose of their foreclosures.

"As Is" Misconceptions

No Free Lunch

Selling "As Is" is a popular choice for banks, estates and other third parties who don't know the condition of a property (because they haven't lived in it), and don't want to be responsible for any repairs.

Occasionally, however, "owner-occupant" sellers -- especially ones with deferred maintenance -- view selling "as is" as a panacea for making costly repairs.

Yes and no.

Yes, in the sense that they can certainly avoid having to do the repairs themselves.

No, in the sense that they'll pay a steep price for having the Buyer assume responsibility for whatever needs to be fixed.

No Shortcuts

Perhaps the biggest misconception is that selling "as is" avoids a Buyer's inspection.

Wrong.

Buyers who agree to buy "as is" still want to know what they're buying, which typically means doing a very thorough inspection.

The second misconception is that selling "as is" will net sellers more money.

Wrong again.

For every $1 in repairs that Buyers assume, they'll typically deduct $2 or even $3 from their offering price.

That's not just because of the time and inconvenience, but to cover the risk that the necessary repairs will be more extensive than appears. In fact, especially when the issue involves (hidden) plumbing, wiring, and any related contractor permits, such "padding" is often warranted.

To avoid such "3-for-1" discounts, Sellers -- at least ones who can afford to -- are often well-advised to tackle the repairs themselves.

P.S.: I remember taking a class in college "pass/fail," only to find out that my grade would have been a "B+." Selling a home in good condition "as is" is like that.