Understanding the Term in Real Estate and the Role of the “As-Is” addendum.
I read a good article today on “As-Is” addenda and real estate contracts on the Inman News Network. The purpose of this blog post is to help define what “As-Is” means in Hawaii, situations where buyers might encounter “As Is” contracts and buyers rights and protection with As Is contracts.
The Hawaii Purchase Contract describes the purpose of an “AS-IS” addenda as the following:
“Property is being sold in its existing condition. Except as may be agreed to elsewhere in Purchase Contract, seller will make no repairs and will convey Property without any representations or warranties, either expressed or implied.”
As mentioned in the Inman article, the term “As-Is” addendum can be a put-off to buyers. Some buyers may assume that the home has a lot of problems that may be expensive to repair. That is not always the case. If the listed property is a second home and the seller has not been on the property in some time, some seller’s will opt to sell the property “as-is” because they are unaware of the current condition of the property or unavailable to make repairs. We are also finding that most short sales and bank owned properties will require an “As-Is” Addendum. Banks usually know nothing about the condition of the property, nor do they want to make additional expenditures on the property when they are already losing money on the sale. In both the absentee owner and the bank sale situations, the “As Is” addendum are less a reflection of the condition of the property and more a reflection of the seller’s circumstances.
It is important to note, that even with an As-Is addendum, the buyers of a property are afforded two basic means of protection. First and foremost, the seller is obligated to disclose any known current or previous defects to a property. The buyer will receive a disclosure statement shortly after their offer is inspected. The buyer has a period of time to review the disclosure statement. If it is not to their satisfaction and they cancel in writing during the disclosure review period, they will be eligible for a complete refund of all deposits. The buyer also has the opportunity to do their own inspections of the property. In the state of Hawaii, a buyer has an inspection period. During this period, the buyer is encouraged to hire a professional building inspector. If the results of the inspection are not to the satisfaction of the buyer, the buyer may cancel the contract. If the contract is canceled in writing within the specified inspection period, the buyer would receive all deposits in full.
I have even seen some circumstances where buyers have requested and received repairs after signing an “As-Is” addendum. In these circumstances, the buyer has discovered a significant issue with the property during inspection. While the seller is not obligated to credit the buyer or to make repairs, they will need to disclose this newly discovered defect to any future buyers. In some circumstances, a seller may find it is better to acquiesce to a willing buyers request for repairs than to put the property back on the market with newly discovered issues.
One other thing to keep in mind is that an “As-Is” addendum can be used as an aid to buyers. While it is more common in seller’s markets, we are still seeing some situations on Maui where multiple buyers may put in an offer on the same property. In these situations, sellers may be more receptive to a cleaner “As Is” offer.