Buying a Property “AS-IS”…What Exactly Does That Mean?

Westcoe Realtors, Riverside Ca…Since Bank Owned properties represent such a large portion of the available homes for sale, and since all banks sell their properties with some sort of “as-is” clause, maybe this is a good time to discuss just exactly what it means to purchase a home “as-is.”

In the “normal” purchase of a property (let us define normal in this case as a purchase where the seller is a real live individual, not a bank), the standard purchase agreement has almost an entire page devoted to the rights of the buyer with regard to inspecting the property, and the negotiation of any potential repairs indicated as a result of that inspection.  Unless otherwise noted, this inspection period is 17 days…and if the buyer and seller cannot agree upon what, if any, repairs are to be made to the home, then as long as the transaction is still within the 17 day period, then either party can cancel the contract with no penalty to anyone.  It is a fair time period, and allows for all parties to either be satisfied regarding the condition of the home, or move on.

However, in the purchase of a Bank Owned property, things can be different from the “normal” transaction described above…and please understand that all banks who own property handle things differently, but what is described below is a fairly accurate description of the general procedure for a Bank Owned property.  Now…what exactly does “as-is” mean in this situation?

In a general sense, “as-is” means that while you still have your inspection rights as outlined in your purchase agreement, the inspection now becomes for your information only, and not a basis for further negotiation of any repairs.  In other words, the bank will generally make no additional repairs to the property, and your inspection report is only for you to know exactly what you may have to fix in the home once you own it.

Understand that most banks have never seen the home, and are already taking a huge financial hit on the property.  The last thing they want to do is spend more cash on what is already a large money loser for them.  They know the home is generally a mess, but instead of getting it in tip-top shape, they will usually price the home accordingly, taking into account whatever “warts” the property has. 

From their standpoint, it is about cash flow.  The amount of money it would take to fix-up most properties, multiplied by all the properties the bank owns, is astronomical.  Then, there is the issue of vandalism on vacant homes.  No bank is going to spend a lot of money on a home when a vacant home is such an easy target in today’s society.  Lastly, most of the time the banks are so aggressive in their pricing of the home (this is code for the price is generally really good!) that even if you have to fix what is wrong, you are still getting a great deal on the price of the home.

Can you get an inspection on the home before you make an offer?  Sure, if you want to spend the money, and you have the time.  Most Bank Owned properties are priced so well that they are currently generating multiple offers from multiple buyers…so if you go spend the money for a home inspection (about $350) and don’t get the property…or the property sells before you can get your inspection report back and analyze it, are you going to be OK with having spent the $350?  For most people, the answer is no.

Can you simply refuse to accept the “as-is” clause in the banks conditions to sell, and insist on your 17 day inspection period as outlined in the “normal” transaction? 

Technically, yes…but in common practice, no.  You try that on most banks, and they will simply pass on your offer and move on to the next one…because the reality here is that the bank is the 800 lb. gorilla in the room with the property at the price you want, so they make the rules, and if you don’t want to play by their rules, they will just find someone else who will. 

 In the end, every real estate market brings its own set of rules by which we are all forced to play, and this market is no different.  Right now, the banks are driving the bus and they know it.  In fairness, they are providing you an opportunity to purchase a home at a price that can be as low as 60% below the price they originally loaned on.  That’s not so bad.  Do you need to be careful?  Of course…but at the prices the banks are offering these homes for sale, a little risk is to be anticipated.