What are the pros and cons of buying as is?

By: Dian Hymer

October 11, 1998

When a property is sold "as is," this usually means the seller won't warrant the condition of the property. The buyer buys the property in its current condition. And the buyer takes responsibility for correcting any defects.

Probate and foreclosure sales are often "as is" sales. In both cases, the seller acquired the property through adverse conditions. In the case of a probate sale, the previous owner died and the property is being sold to settle the estate. With a foreclosure sale, the previous owner stopped making mortgage payments and the property is now being sold by the lender.

In this kind of sale situation, you may be buying from a seller who doesn't have any knowledge about the property condition. There may or may not be reports available. Even if the seller has reports, have the property thoroughly inspected by qualified professionals before you buy.

The benefit of buying "as is," even if the property is in poor condition, is that you'll pay a lower price than you would if the property was in better condition. The costs of sale that are determined by the sale price, like transfer taxes, will be lower. And your property taxes might be lower.

Another benefit is that you'll be in control of rehabilitating the property, so the fix-up work will reflect what you want in the home, not someone else's taste. However you'll need to pay for the improvements. Carefully investigate the renovation costs so that you don't overpay for a rundown property.

FIRST TIME TIP: "As is" buyers who are planning to make big modifications to a property should check with the local planning department to make sure that their plans are realistic. Some cities have strict design review requirements that homeowners must satisfy before renovating their homes. In addition, plan on the project costing more than you anticipate it will.

Often buyers buy "as is" regarding a specific item, rather than buying the entire property on an "as is" basis. Let's say that the deck is dry rotted and termite infested. It needs to be replaced. The seller is willing to have the work done. But the buyers don't want the deck replaced as it is. They want to expand it and add French doors leading from the kitchen to the deck.

It's unreasonable to expect sellers to pay for buyers' remodeling projects. However most sellers will reduce the sale price by the amount of the seller's deck replacement bid if the buyers take the deck "as is". The buyers get a lower purchase price and they gain control over the project. They also have to pay for it.

For buyers who are short on cash, it might be better to ask the sellers to give a cash credit at closing (called a closing cost credit) for the amount of the seller's deck bid. The sale price is not reduced, but the buyers receive cash at closing that can used for the deck work.

Make sure to check with your lender regarding a closing cost credit. Most lenders will allow such a credit, but there are limitations. For instance, the total amount of the credit usually can't exceed 3-6 percent of the purchase price. And, it usually can't exceed the total amount of the buyers' nonrecurring closing costs (closing costs paid on a one-time only basis, like mortgage points).

THE CLOSING: Buying "as is" is not recommended for first-time buyers, or for any buyer who can't cope with the additional workload and stress that goes along with remodeling.

Dian Hymer is author of "Starting Out, The Complete Home Buyer's Guide," Chronicle Books, Revised 1998.

Copyright 1998 Dian Hymer

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