Selling Real Estate 'As Is': Guide For Investors

What are the benefits of selling real estate “as-is”?

If you’re a real estate investor, you need to know what “as-is,” means. Having an “as-is” clause in a real estate contract could potentially save you from many litigation issues down the line. What are the benefits of this type of real estate deal? What are the drawbacks?

In this article, we’ll go over all of that and more, including:

• What it means when a property is being sold as-is.
• How as-is properties differ from houses on the traditional market.
• The pros and cons of selling real estate as-is.

What Does It Mean When a Property is Sold As-Is?

If you’ve ever shopped for homes online, chances are you’ve run into a property description that included the phrase “as-is.” Chances are that the house was significantly cheaper than the other houses in the area. Why is that? What does it mean when the owner is selling the property “as-is?”

Selling real estate "as-is" means that it’s being sold in its present condition, without any stipulations that the seller fix this or that. It doesn’t matter if the roof is caving in and the water isn’t running. As long as the seller follows the disclosure laws in his or her respective state, he or she doesn’t have to make any repairs to the home to get it in livable condition. It comes exactly as you see it, or “as-is.”

Here are some quick things you should know about buying and selling real estate as-is:

• As-is properties typically are in worse condition than other homes on the market. That’s why they’re usually less expensive than those other homes.
• If you’re selling a rental property (or any property, for that matter), including an as-is clause can save you from a litany of possible legal issues.
• Often as-is deals are 100% in cash.
• When you’re negotiating for an as-is property, it usually isn’t appropriate to try to get the seller to pay for certain repairs. If it’s included in the property description, the seller probably isn’t interested.
• These properties usually offer opportunities for value-add “fix and flips.” Investors buy a run-down property for less than its after-repair market value, fix it up, and attempt to sell it for a profit.

How does that differ from the traditional real estate sales process?

Selling Real Estate The Usual Way Goes Like This ...

Many traditional real estate contracts include inspection and appraisal contingencies. Since the deal isn’t 100% in cash, the bank wants to make sure it’s granting a loan on a reasonable investment. These contingencies can also give the buyer the right to back out of the contract if something unexpected pops up, or if the appraiser comes in at a value that’s higher than the sale price.

The biggest differences between selling real estate as-is and selling real estate on the retail market are:

• Sales price. Selling a property “as-is” typically has a lower sales price than listing a house in a more traditional manner.
• Time to close. It takes a traditional real estate transaction longer to close, since a third party (the lender) is usually involved.
• Realtor commission and other fees. Since lenders require inspections and appraisals, there are more fees associated with buying and selling traditionally.

Now that you have a general overview of what that means, let’s dive into who buys and sells these types of properties.

Why Would You Sell a House or Rental Property As-Is?

There are plenty of reasons why someone would sell a house or rental property as-is, but they all have one common denominator: they aren’t willing (and/or able) to make repairs to the property before closing.

With that said, here are some common reasons people sell properties as-is:

• They received the property as an inheritance following the death of a loved one, and they don’t have the money or time to fix the property up to the market’s standard.
• They received a notice of default from the bank and are attempting to sell the home as a short sale to avoid bankruptcy.
• They don’t want to haggle with buyers over certain repairs.

So, whether it’s through neglect, inheritance from a loved one, or some other reason, the seller doesn’t have the time, interest, or money to fix it up and list it to people who are looking to move in immediately.

Pros and Cons of Selling Real Estate As-Is

Let’s look at the pros and cons of selling real estate as-is.

Pros

• Quick sale. The average real estate transaction takes 30-45 days to close after being sold. Repairs are one of the biggest reasons it takes so long to close. When you’re selling as-is, you can probably avoid many of those repairs.
• Less hassle. If you sell as-is, you won’t have to haggle with buyers over minor -- or even major -- repairs.
• Including an as-is clause might save you from potential legal issues down the line.

Cons

• Your sale price will almost definitely take a hit. Since buyers are being dissuaded from negotiating repairs, they’ll have to make those repairs themselves. That will cost you some money.
• Selling real estate as-is doesn’t mean you can avoid an inspection. The buyer can still cancel the contract for any reason at any time, and they can still come back and ask for repairs.
• It doesn’t protect you from all potential legal issues, nor does it mean you can sidestep your state’s disclosure laws.

What You Need to Know if You’re Buying or Selling Real Estate As-Is

If you’re an investor, what are the big takeaways from this article? If you’re selling real estate as-is, then you can avoid a slew of potential litigation issues, particularly in the case of rental property, and you can close deals at a much quicker pace. However, in exchange, you’re sacrificing a higher sales price. Houses that are sold in a more traditional manner might have more fees, but they also typically sell at higher prices.

Photo by Webdexter Apeldoorn from Pexels