Home Buying in Los Angeles>Question Details

Cleo Jones, Home Buyer in Los Angeles, CA

If I agree to buy a property "as-is" but also have an inspection contingency, how does that work?

Asked by Cleo Jones, Los Angeles, CA Tue Aug 26, 2008

I've made an offer on an REO, and have the counteroffer from the bank accepting my price but restating most of the purchase agreement terms. I see that I am agreeing to purchase "as-is" but at the same time there is still an inspection contingency. If I discover something about the property that changes my mind, what's my recourse?

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12
Cleo
Every property is really sold "as is". The question is, are you willing to buy it when you know the truth about the condition?

You have some great posts, I would add a few itemsL
First, your idea of okay and a lender's idea of okay may not be the same. When a lender submits the loan package to the underwriter there are some issues that might cause the underwriter concern, For example, if there are severe structural issues, termite damage, etc. they may opt to decline to approve the loan, or they may lower the appraised value.

Second, you need to know your market values. REOs typically have deferred maintenance, such as dirty windows, dead grass, etc. However, it is possible that there might be more serious problems. When a lender forecloses some owners do not go quietly. They may remove appliances, toilets, sinks, pour cement down drains, all kinds of weird things.

In most cases the Listing Agent submits an inspection report to the lender when they take the listing. This helps the lender figure out what they really have on their hands and formulate a sales price is realistic. I would ask the listing agent if there are any inspection reports to review prior to making the offer. If not, you might need to arrange and pay for a physical inspection BEFORE writing the offer.


Caveat Emptor! Let the buyer beware!
2 votes Thank Flag Link Tue Aug 26, 2008
Keith Sorem, Real Estate Pro in Glendale, CA
MVP'08
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Cleo:

I represent a lot of First Time Homebuyers and they are often looking to buy REO properties. Here is my experience and my advice about working with the banks and the "as is" clause.

Most banks usually will NOT make repairs. Some banks will consider correcting health and safety issues, but not all banks. The reason for the inspection period is to protect you, give you time to get to know the house, and allow you to decide if you are getting in over your head. Remember the saying, one man's treasure is another man's trash. To a person who is very handy, a home needing some minor repairs and cosmetic updating can afford this person a great home at a great price and not stop them from sleeping at night. To, for example, a single mother with children, even if she is extremely handy, a minor repair of something like missing handrail on the stairs, is not so minor and would stop this person from sleeping at night. You can cancel during the inspection contingency period if your inspection comes back with items on it which you do not want to be responsible for repairing.

My suggestions is,
1. hire a really good inspector and BE THERE for the inspection. Walk the house with the inspectors.
The really good ones will tell you, this is a problem and here are some ways to fix it.
2. Make a list of all the items that you and inspector believe need immediate attention.
3. Decide which items you can do and get a bid from a licensed professional on fixing the items you cannot handle.
4. Ask the bank for the repairs, or a credit for the repairs, based on your list. Do not expect them to agree, but it never hurts to ask.
5. Decide if the cost of the repairs plus the price you offerred for the house still makes sense to you.
6. Proceed with the purchase if the answer is YES. Cancel the contract if the answer is NO.
7. Make sure all this is completed in the, usually, shortened inspection and contingency removal period given you in the addendum.

Buying an REO can get you a great home at a great price. Just make sure you know what you are getting yourself into and Dare to Dream.

Shel-lee Davis
Real Estate Consultant
RE/MAX Palos Verdes Realty
2 votes Thank Flag Link Tue Aug 26, 2008
Hi Cleo, no property is every sold 'As-Is". The only reason the listing agent or seller would state that is because they want you to know that no repairs are going to be made. But, during a coarse of investigating, if you find a serious problem with the home, nobody is going to force you to buy it. Please consult with your real estate agent for professional advice.
1 vote Thank Flag Link Tue Sep 2, 2008
What an amazing resource this is and great information from everyone. One more thought to add to these. I'm an investor and buy REO's all the time. I've made over 400 offers on REO properties in the last year in different parts of the country. If the work needed turns out to be more extensive that you thought, go back and renegotiate. Sometimes in the banks addendum they don't accept renegotiation based on inspection. If this is the case, you can submit an addendum, prior to your inspection period ending, canceling the contract if the seller doesn't accept an offer at the new price. You can submit your home inspection and contractor bids with it as proof. It also wouldn't hurt to give photos of the problems. My experience is that the BPO (Brokers Price Opinion) --meaning the house value the bank is using to price the property, is not always accurate. Sometimes they need a little more education and you can give it to them. This can also include a breakdown of how many foreclosures are in that area and how many similar houses are on the market there. It's not uncommon for me to get reductions on price by asking for it. The listing agent may tell you that you can't do that. I've even had threats (as they get scared of losing their commission)---but I've never lost a deal from it. In fact, quite the opposite. However, if you play this game, you have to be willing to lose. That said, you could always submit another offer if they don't accept this one. But they might not take it and you risk losing the deal. Food for thought.

Mary Steinborn
Mary@GreenWorldHoldings.com
1 vote Thank Flag Link Tue Aug 26, 2008
Cleo,

The way that it works is you still have the option of having a home inspection even if the house is sold "as is". This way, you know exactly what you are getting into. Even though the seller will not pay to have anything fixed, you will at least know ahead of time if you want to proceed with the sale. If there is not a lot wrong with the house then that is a good thing. However, if the items that need to be fixed exceed what you want to spend over time then you know you don't want to proceed. Make sure you do your inspection within your time frame. Typically, this is over 17 days from when your offer is accepted. However, some agents tighten up this period to get the inspections, appraisals etc overwith to see if the buyer really wants to move forward. If not, then they can move on to the next buyer.

Good luck,

Joan Patterson, B.A., A.S.P., G.R.I., Realtor
Keller Williams Realty
8250 White Oak Avenue, Ste 102
Rancho Cucamonga, CA 91730
951-204-1864
http://www.calljoan4homes.com
1 vote Thank Flag Link Tue Aug 26, 2008
Cleo,

Hello. Good question. It does seem counter intuitive. When a seller is selling a property "as-is" they are basically stating that any repairs that may be needed to the property they are not willing to pay for. This is typical when looking at REO properties since many of these properties can be in various states of disrepair.

The inspection contingency allows you the buyer to check out the condition of the house to make sure you are not biting off more than you can chew. The house may look great but if it needs a new heating system, plumbing and foundation it may not be such a great deal.

I work on both ends of the foreclosure business (listing and buying) and typically with REO properties any major repairs needed are usually negotiated with a lower offer price. The banks typically do not want to have the responsibility of repairs and want to get the property off their books. Every situation is different, and I have seen scenarios where the bank will credit for certain repair items, but this in not typical.

The inspection contingency time frame is to protect you the buyer so you can not only inspect the physical condition of the property, but also have an opportunity to check out the neighborhood, look at crime stats in the area, etc, so you are fully aware of all the factors that may affect the property.

Good luck in your home search and hope this helps.

Take care,

Lisa Cartolano
Alain Pinel Realtors
http://www.LisaCartolano.com
1 vote Thank Flag Link Tue Aug 26, 2008
The purchase addendum provided by the bank will be incorporated into your original purchase agreement and will still allow you to inspect a property within agreed upon time periods or cancel the contract... but you need to read the purchase addendum carefully to make sure you understand the terms. Also most bank purchase addendums will be "passive" contingencies which means you really have to pay attention to the deadlines in the agreement, because passing those deadlines would indicate acceptance of those items. (Unlike the standard CAR purchase agreements which contain active contingencies that have to be removed in writing.) The main gist of the purchase addendum is that the bank is saying since they never lived in the property they cannot "disclose" many items about the property and thus will not be held accountable. But you can still inspect the property and ask for credits or repairs as long as you do it within the agreed upon timelines. Different banks have different purchase addendums so make sure you go through it carefully with your agent. Most banks will not move forward in a deal with a buyer if the buyer does not sign the purchase addendum. Good luck, Cleo Jones!
Web Reference: http://www.keyserhomes.com
1 vote Thank Flag Link Tue Aug 26, 2008
Give Thomas Mackelburg at AmeriSpec a call when your ready. (818) 831-8622.

As stated below:

1. hire a really good inspector and BE THERE for the inspection. Walk the house with the inspectors.
The really good ones will tell you, this is a problem and here are some ways to fix it.
2. Make a list of all the items that you and inspector believe need immediate attention.
3. Decide which items you can do and get a bid from a licensed professional on fixing the items you cannot handle.
4. Ask the bank for the repairs, or a credit for the repairs, based on your list. Do not expect them to agree, but it never hurts to ask.
5. Decide if the cost of the repairs plus the price you offerred for the house still makes sense to you.
6. Proceed with the purchase if the answer is YES. Cancel the contract if the answer is NO.
7. Make sure all this is completed in the, usually, shortened inspection and contingency removal period given you in the addendum.

Buying an REO can get you a great home at a great price. Just make sure you know what you are getting yourself into and Dare to Dream.
0 votes Thank Flag Link Mon Sep 29, 2008
the addendum usually states it overrides a purchase and sales agreement and are you purchasing the property as is. some banks will allow you to have an inspection but it is for your own knowledge, there is no renegotiating after they agree on a price. your best bet is to have the listing agent give you an answer so you know up front. good luck with your purchase
Web Reference: http://www.ScottSellsNH.com
0 votes Thank Flag Link Thu Sep 11, 2008
AS-IS means that the seller will not pay for any repairs, regardless of what is found during inspection. This typically happens when the home is listed for what the seller considers the lowest price he will accept.
You can still back out of the sale if the inspection reveals defects that will be too costly to undertake.
0 votes Thank Flag Link Thu Sep 11, 2008
Buying a house that needs repairs can be a great deal, especially if you plan to place the property into service as a rental. Why? Tax writeoffs. Repairs are deductible in the year they are paid for. I'm a landord, and actually look foward to repairs. I know that at the end of year, I claim my depreciation, mortgage interest, and repairs--and get a big check. You can stagger the repairs out if you wish. It's all perspective, and how you look at things. Broken heating system? Bring it on! I'll buy it!
0 votes Thank Flag Link Tue Sep 9, 2008
Hi Cleo,

Make sure to do several inspections including a chimney inspection if there is a fireplace, sewer line inspection w/video to make sure lines are clear, mold inspection and of course, the physical inspection. Please make sure to hire qualified and LICENSED companies.

You can 'opt out' anytime during your 'contingency' period after completing all your inspections. Make sure everything is done in writing.

Best,
Yona Bello
Web Reference: http://www.YonaBello.com
0 votes Thank Flag Link Tue Aug 26, 2008
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