“As-is” Home – Is It Really a Deal or No Deal?

In this 8-part series, How to Find the Perfect Home for You and Your Budget, you’ll learn how to find a home that is the right fit for your lifestyle, needs and, most importantly, your budget. It takes you through every single step and show you how to avoid buyer’s remorse.  This home is likely a stepping stone for your next home so you want to do it right and set yourself up financially to move up to your next home.

For this last week, we examine what it means to deal with an “as-is” home and if it’s something you should pursue.

You’ve probably seen listings stating a home is being sold “as-is.” Does that mean it’s a dump and not worth seeing?

It can be hard to tell since there can be vast differences in the conditions of “as-is” homes.

These homes can sometimes be a good deal budget-wise, especially if it gets you into a neighborhood you’ve been eyeing. However, some “as-is” homes come with more troublesome issues that could cost you more in the long run.

If you do make an offer on such a home, you need to take certain steps to protect yourself.  Here’s how:

Understand What “As-is” Means

Basically, “as-is” means the buyer will purchase the home from the seller in its current condition no matter what since the seller has no intentions to do any repairs to the property before they sell it. Typically, the seller is financially constrained and doesn’t have funds to make any changes.

The home could be in pristine condition or it could be a major “fixer upper.”

Seller Disclosures – not worth the paper they are written on. Washington requires sellers to disclose any defects they know about in a home for sale. However, they are not truly held liable for not disclosing unless it is truly fraudulent, and the bar is very high for fraud. Buyers need to do their own due diligence, and know that it’s “Buyer Beware” for any defects.

Be proactive and ask about any repair history. Did the seller have water damage at one time and made repairs, which now aren’t obvious to the buyer or the inspector? You want to know as much about this home as possible, especially any water damage history. However, don’t assume the seller will be transparent and don’t rely on their assurances that nothing happened.

Take cautious steps if seller is a non-occupant.  If the property is owned by someone who didn’t live in the home recently—whether it was a landlord who had been renting out the property, an estate selling for a deceased family member, or even a bank in a foreclosure sale, they can’t disclose something they didn’t know about. So be more vigilant since there could be more wrong with the property than what has been disclosed. 

How to Protect Yourself

Take additional steps to ensure you understand the true condition of a home, both apparent and “hidden.” That way you’ll have a better idea of negotiating and budgeting for this home.

Make sure you get a qualified inspector. If you included a home inspection contingency in your offer (which you always should), you are given a window of time to get the house inspected.

You can get a decent idea of the home’s condition. Does it have a leaky roof, any water damage, serious foundation issues, and pest or termite history? However, an inspector can only inspect what is visible. They cannot see through walls or under siding. They are not allowed to do anything destructive to get better visibility into an area.

The results will help you decide whether you will continue with the transaction or not. You can walk away if you aren’t comfortable with buying the home.

Get bids from contractors. If there are necessary repairs to be made, contact contractors during this contingency period to have a better idea of future costs.

These estimates could help you at the negotiating table to bring down the price of the home. Be prepared to pay contractors to come and prepare an estimate. They are busy, and good ones don’t need to provide free estimates. Most will apply the estimate cost toward final fee if you hire them to do the work.

You might not get your loan on an “as-is” house

Lenders have minimum standards for homes on which they loan money. They want to make sure they aren’t giving you a mortgage for home that is going to leak or fall apart. Lenders will do an appraisal shortly after the contract is signed. If the appraiser calls out work orders to bring the home up to minimum standards, if the seller won’t or can’t make the required repairs, you won’t be getting a loan. Don’t waive your financing contingency on an “as-is” house. There a big risk you won’t get the loan AND you’ll lose your earnest money.

There are specialized loans for homes needing major repairs. Talk to your lender about these if you think buying an “as-is” home is on your radar. They are a lot more complex than a regular home loan, so you’ll need to understand what’s involved early.

“As-is” might not be the bargain you hoped it was

If you are purchasing an “as-is” home because you don’t have the funds for a more expensive home, be sure the required repairs can be fixed with sweat, not money! If you’ve blown all your cash purchasing a home needing expensive repairs, you won’t have the funds to do anything. If you use credit cards or borrow elsewhere, you could be paying a much higher interest rate than a mortgage. You might be better off to purchase a home that is better shape.

Compare the cost of the “as-is” house + repairs vs. a “done” home

My clients are often comparing the cost of a more expensive, but “done” home with a home that hasn’t been updated in decades and needs thousands, or hundreds of thousands, of dollars in updates to be comparable. Sometimes cost of the “as-is” home + update cost is about even with the “done” house. In that case, you should decide if you want to put up with the time and trouble, and potential cost overruns to get updates that are just what you want vs being able to move in today, but the updates are someone else’s style. Sometimes you can save quite a bit of money getting a home that is truly hideous and spending the time and money making updates. That’s why you need a great broker to guide you through the maze of options.

You’ll want to completely understand what you’re getting yourself into if it is a home that will need lots of work.  Honestly ask yourself if you will have the time, the commitment, the patience, and the budget for undertaking any major repairs and making it more livable to your standards.

I hope you have enjoyed this How to Find the Perfect Home for You and Your Budget series. Here’s a recap and link to the previous articles:

• 12 Questions to Ask Yourself Before You Step Foot in an Open Before you do anything else, you must evaluate you wants and needs for a home with some self-analysis.

• Are You a House or Location Person? Buyers tend to lean one way or the other, and by knowing this you can streamline your home search either way.

• The 3 Steps Most Buyers Skip When Buying a Home You don’t want to mess up one of the biggest financial decisions of your life so don’t forget to do these 3 things.

• The “Backwards” But Right Way to Finance Your Home Our way of financing a home will lead you to the right home for your budget. 

• What Levers Can You Move To Get (most) Everything You Want In a Home? Here’s how you can learn to balance your budget, location, and criteria so that you do get the “perfect” home for you.

• What YOU Need to Know About Buying for Schools Every buyer needs to decide if “good schools” is on their criteria list, or not. Here’s how.

If you are thinking about buying a home over the next few weeks, months or even a year or two from now, I’d love to help you find the perfect home for you and your budget.  I want you to have everything you’ve ever wanted in a home and I’d love to help you find it without blowing your budget. 

Email me gretchen@metropolist.com  and let’s see what’s possible and how close we can get you to your own perfect home sweet home.