Home Buying in 94513>Question Details

Howard, Home Buyer in 94513

I'm have an offer in on a flipped property. They have responded wanting me to sign an 'as is' clause. Is this normal? Should I be concerned?

Asked by Howard, 94513 Tue Jan 15, 2013

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Carl Medford’s answer
Let me throw something into the mix here – MANY flippers are doing all the work without pulling a single permit. When you sign the “AS-IS” clause (and, as stated below, it’s the norm for flips), then you are removing the seller from any responsibility for corrective work if inspections reveal work not done to code. It’s a catch 22 – if you sign, you get the house. AND any issues that go along with it. Don’t sign … you don’t.

Here is a post that may be helpful:

The Good, the Bad and the Ugly – 3 CRITICAL Things To Know About Flips
http://www.trulia.com/blog/carl_medford/2010/11/the_good_the…
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1 vote Thank Flag Link Tue Feb 5, 2013
a very good reminder to check your emotions at the door and pay attention, look beyond the glitz!
Thank you very much for sharing this.
Flag Tue Feb 5, 2013
BEST ANSWER
I'm continuously amazed at how many agents and sellers continue to use some form of "as-is" addendum. It's completely unnecessary. Unless you are not using the CA Association of Realtors purchase agreement form RPA-CA. But I would never suggest a purchase without using the RPA-CA.

The standard purchase contract form (RPA-CA) was modified many years ago and it clearly states at the top of page 4 paragraph 9 the following. "the property is sold in its PRESENT physical (as-is) condition as of the date of acceptance and subject to buyers investigation rights". You still have the right to inspect and investigate the place and if that turns up anything you don't like then you have options at that point. To ad an additional addendum to this language is redundant! But many agents and sellers are ignorant to this paragraph or they want to simply try to drive the point home that it will be futile to ask for any repairs or remedies after you have your inspections. Sadly they probably wont accept your offer unless you agree to their redundant addendum. If they already accepted your offer and they are just now presenting you with this addendum then you are not required to sign it. You already have your agreement in place. Keep in mind however that if you refuse and should you need a favor from the other side later on in the deal they might not be inclined to cooperate with you.

Read the addendum carefully and compare it to what is already found in the RPA-CA paragraph 9.. If the addendum is essentially the same then it is probably harmless to go ahead and sign it. Always consult with your agent or attorney first and dont take this response as legal advice.
1 vote Thank Flag Link Tue Jan 15, 2013
Great response, and thank you for pointing specifically to where this is already mentioned in the contract. I didn't get it either. My concern which I'll take up with my agent is if I go through all the inspections, and end up not satisfied, then yes, I can walk away, but did I just waste that money? Appreciate everyone's prompt responses.
Flag Tue Jan 15, 2013
Certainly not normal, but a trend we saw when REOs were hot several years ago was an effort by the asset managers to use "AS IS" language and force you to get pre-qualified with their preferred lender. In the current market there are several investors that have adopted the same strategy to reduce the number of failed escrows by trying to eliminate some of the reasons escrows fail, which are a buyer that suddenly doesn't qualify or a home that suddenly isn't worth what the contract price is as negotiated due to a newly discovered item uncovered by the inspections. The bottom line is that the contract is still contingent on financing and the sale is still contingent on inspections. The key is to be sure your local agent had a great team to assist along the way.
1 vote Thank Flag Link Tue Jan 15, 2013
This document is not anything to be worried about without a full disclosure packet.

The concern about flipped property is who is doing the flipping. I have seen many homes that have been flipped, some have been done very well and would do business with those sellers again, others I won;t even show their properties if I don't have to. With flipped properties and bad sellers is being concerned about how many corners they cut in order to get the job done.

A few good rules of thumb with flipped homes are...

1) You can not do too many inspections. Once a buyer gets the property inspection, if there is ANY indication that some sort of specialty inspection is recommended, do it! Some flippers use handymen supervised by someone who is licensed who works for either the selling broker or the owner. In these cases the contractors license is meaningless because whatever protections a licensed contractor law is intended to provide will be minimized but the sellers profit motive and back door control of that contractor.

2) Expect to redo some of the work the contractor did. There are many practices that a expert flipper knows that are both legal and meet contractors standard of care but are not "conventional" and meet any perceived top dollar standard that I know. Here is one example. In older homes, electrical wires are a mix of modern Romex and several older forms that include knob and tube. Grounding to plumbing and/or adding a grounding stake are all chinzy ways to meet code requirements. In flipped properties I see this all the time. A professional quality flip would have proper Romex and upgraded electrical but due to the current budget constraints of flippers this level of effort is seldom applied.

3) Don't pay Mercedes Prices for a Buick. In this low inventory market that is a tall order but given a choice between paying top dollar for new Ikea cabinets and pergo floors or a tired clean home. Give me the tired clean home anyday of the week. Reason? A) You know what you are buying B) The probability of paying a premium for new work that may need to be redone is lower and C) Better sellers that are willing to give and take for substandard work.
0 votes Thank Flag Link Wed Jan 23, 2013
Unless you do not use a CAR purchase agreement or waive your inspection contingency there is no such thing as "as is". That is the seller's way of saying I don't want to fix anything.
You still have a right to inspection the property and you still have a right to ask. They have a right to say no and you have a right to back out if you do it within the time frames of the contract.

Good Luck.
0 votes Thank Flag Link Wed Jan 16, 2013
Hi Howard,

First question I'd ask you is, Are you using a Buyer's Agent, to protect you during the purchase?

As far as, being normal? The seller may ask for that you sign a clause, but it is up,to the buyer to agree to such a clause.
Does your contract have stipulations that you may back out of the purchase within X number of days of the inspection contingency?

Just because a seller is selling as is, does not mean that the buyer can not make a request for repairs.

Please talk to your agent, not the listing agent for advice.

If you have not placed an offer yet, and don't have an agent, stop! Interview several experienced agents, and pick one that you feel comfortable working with.

Ay questions, please check my profile and contact me.

Douglas Lagos
Realtor, CHS
Coldwell Banker
Web Reference: http://www.douglaslagos.com
0 votes Thank Flag Link Wed Jan 16, 2013
The 'as-is' phrase is very common for this type of deal. Just make sure you get a through inspection done.
0 votes Thank Flag Link Wed Jan 16, 2013
Sold as Is clause is common in short sales, bank-owned and even in traditional sales. However, as Neil mentioned, this clause is unnecessary because there is a stipulation on the real estate purchase contract wherein it states that the seller is under no obligation to remedy any repairs or issues uncovered by the home inspection.

This might only serve as a deterrent to present home inspection request. However, there are instances that a SOLD as IS clause does not mean anything because the seller may consider working with the buyer on certain repairs to consummate the transaction rather than putting the property back on the market.

Best.
0 votes Thank Flag Link Wed Jan 16, 2013
The Bigger problem is the appraisal if you are being financed. Most flips are going for far more than the appraisal price. Be prepared to loose all your inspection costs and possible Deposit if you do not have the money to fill the gap between appraisal and asking price. Check your comps! Most gaps I have seen with flips can run you 20 to 50k.
0 votes Thank Flag Link Tue Jan 15, 2013
Most likely, they just don't want to spend money on any repairs you might ask for after you do your inspections.

It's not unusual for flipped properties or bank owned properties to ask you to take the property as-is. As you would with a bank owned property, do your due dillegence and get as many inspections as you want to satisfy yourself as to the condition of the property, keeping in mind the seller may not do any repairs.

Sometimes, while a seller might not do any repairs, we are able to negotiate a credit or a reduction in the sales price.

Speak with your agent about your options and good luck to you!


Craig Lawler
0 votes Thank Flag Link Tue Jan 15, 2013
This is a normal request for a flip. The bigger issue with a flip is the appraisal. If the new price exceeds 120% of the original price you may have a problem getting financing. Some lenders want two appraisals and want documentation of the work performed. Many of the flippers will not provide this information. Check with your lender about their requirements.
Good luck,
0 votes Thank Flag Link Tue Jan 15, 2013
Sounds reasonable. You should still be able to have any inspections you want and if something serious comes up, you can renegotiate the price.
0 votes Thank Flag Link Tue Jan 15, 2013
Hi Howard,

I agree with Cathy, this is common with "flips".

Talk with your Agent on how you can sign the "AS IS" clause/addendum and still protect yourself via property inspections and your investigative contingency! (assuming you used the most recent CAR RPA contract).

-Steve
0 votes Thank Flag Link Tue Jan 15, 2013
Completely normal since the seller never lived in the property and has no prior knowledge of "problems." For peace of mind purchase a home warranty. Congratulations on your accepted offer!!! In this market that is QUITE an accomplishment!
Cathy Daniel
925-784-8863
0 votes Thank Flag Link Tue Jan 15, 2013
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