There are many parts of to an “AS IS” Residential Contract for Sale and Purchase. When it comes to repairs the contract typically states that it is agreed that the buyer is purchasing the house in it’s current condition or are they.
As a seller with an As Is contract with a buyer you are not required or obligated to make any repairs. Unless there are other written agreements like an FHA or VA Addendum, but that usually applies to termites and roof damage.
Why Would I Do Repairs if it’s an “AS IS” Contract
Depending on the type of market (Seller-Buyer-Balanced) you may have to do the repairs just to sell your house if it’s a buyers market. If it’s a sellers market you will have the advantage because of the shortage of houses for sale.
Mortgage lenders with FHA/VA and other HUD back loans may require certain repairs be made before they lend money to the buyer. In section two of this example states ” Seller shall comply with applicable FHA or VA
regulations regarding termite inspection, roof inspection, and appraisal repairs (collectively “Appraisal Repairs”).”
There is a limit amount that must be filled out that the seller agrees to. Make sure this is not left blank when signing this addendum. If the repair is more than the agreed amount you will have to go back to the table to renegotiate or cancel.
Most states require home owners to disclose know defects to the buyer whether verbally or in a written sellers disclosure. This is what is written in a Florida As Is contract – “Seller knows of no facts materially affecting the value of the Real Property which are not readily observable and which have not been disclosed to Buyer.”
Seventy-seven (77%) percent of all recent home buyers obtained a home inspection prior to the purchase of their homes according to American Society of Home Inspectors ASHI. Home inspections are a pretty detailed report about the condition of a home.
If your not sure of the condition of your home it may be to your advantage to get a home inspection before you list your house. I wrote about a seller home inspection before listing in this post. It can save you time and money when selling your home.
3 Types of Repairs
After the home is inspected the home inspector will complete a report with photos of the recommended repairs. He will also provide recommendations in his report that fall into one of three catagories:
- Must or should be repaired– These are typically safety, structural or foundation issues. In the summary page the inspector will provide a list of items he recommends be repaired before a buyer purchases a house.
- Minor repairs– Minor repairs like cracked light switch covers, grass growing on the side of outside a/c unit, missing window screen, small cracks in the driveway, etc. They are usually cosmetic or minor issues.
- Negotiable repairs- Repairs that could go either way will have to be negotiated. This could be worn flooring, not enough insulation in the attic or fogged window.
As a home seller make sure you know exactly what the buyer is asking in writing, not a generic to-do list or copy of the home inspection. Here’s a good article from Realtor.com on home inspections and what to repair.
What Are Your Options
As a seller you have several options that hopefully your real estate agent will discuss with you. There will be a back and forth negotiation with the buyer and their agent to get this worked out. You have to decide how much you want to sell your house at this time.
It would be wise to agree to do the repairs that will satisfy the lender requirements. These requirements will not be known until the lender sends an appraiser. As stated earlier these are considered “Appraisal Repairs” meaning the appraiser will recommend these repairs be completed before the lender should agree to the loan.
Another reason I recommend doing these repairs is because when the FHA appraisal is performed, the appraisal is registered with a case number and will be attached to the property and usable for 120 days. A VA appraisal is attached to the property for 6 months.
Agents will sometimes try and second guess what repairs an appraiser will recommend. The buyers agent will confuse the seller by stating in their repair request that the repairs need to be completed to satisfy an FHA or VA loan. The only one who can determine that is the appraiser.
Another situation you must deal with is the presence of termites or other wood destroying organisms found during the WDO inspection. Here’s a good article on WDO inspections if your not familiar with them. Most people won’t accept a house that’s has visible termite or other wood destroying organisms.
Just say no! You can tell the buyer that you are not willing to do any repairs. This works with conventional loan and cash buyers because the appraiser isn’t looking for repairs like the FHA/VA. It may affect your appraised value but it won’t kill the deal.
Another tactic is to lower the house sales price to cover the repairs or put the money in escrow after closing to pay for the repairs after an amount is agreed upon. The buyer would have to check with the lender to see if this is acceptable.
Offer a Home Warranty if the buyer is worried about the age of the a/c or appliances. If your not familiar with home warranties here’s a post with good information. It may be worth the $500-600 to keep the deal going.
Related Questions and Thoughts
A common questions I’m asked as a Realtor is if I decide not to follow through with repairs and contract do I have to disclose what I now know from the inspection reports. In most states, yes you would. The Florida sellers disclosure has a blank update page at the end of the form that as a seller you are suppose to add any new information or corrections from the original.
What are the usual inspections when selling a house? Each state will be different but the three big ones are the home inspection, termite or wood destroying organism inspection and the appraisal. A bad report from any of those three can kill a deal.
What ever is negotiated or agreed upon should be in writing and signed by both buyer and seller. That agreement or Addendum needs to spell out exactly what is expected. Verbal agreements never work out well, things get lost in the translation especially because the buyer and seller are going through an agent.
Who gets to keep the earnest money if the contract falls thru because of the home inspection? Contracts for the sale and purchase of real estate have an inspection period in the contract usually 10-15 days. If the buyer is within that window and decides to cancel they will get their earnest money deposit back. If it’s past that time you and the buyer would have to agree on who gets it or if you split it.
A buyer doesn’t necessarily have to hire an inspector to ask for repairs. They may be a contractor or have enough experience to know what needs to be repaired. In this case it would have been better to use a standard sales and purchase agreement or have those repair requests added to the remarks section when the offer was originally made.
Sellers don’t like to deal with repairs and it’s a hassle pulling everything together to make it work. In the end it’s worth your time and effort to get your house sold, you have a willing buyer that is half way through the purchasing process. The alternative is starting over again and possible ending up in the same spot. Ask your Realtor for their advice on what repairs are need to make the deal work, after all isn’t that what they get paid for.