It is super important that you work with an excellent, experienced Realtor when purchasing any real estate.
You should be working with an agent experienced in short sales to help you through this process. An "As-Is" sale simply means you are buying the property in its current condition and the seller will not make any repairs.
If you made your offer subject to a home inspection and/or pest inspection and find that the repairs needed are too extensive, then you can choose to not buy the property and your earnest money deposit should be returned to you. The inspection period is there to protect the buyer. In paragraph 14 of the California Association of Realtors contract it states that the Buyer, shall in wiriting, remove applicable contingencies by the time period set forth in the contract or cancel the agreement in writing.
You need to refer to your purchase agreement, speak with your agent, and/or consult with a real estate attorney to understand clearly what agreements you have made or are about to make in the purchase of this property.
April Tavares, GRI, ASP
Realtor, DRE License #01742179
You may also have a loan and/or appraisal contingency that can be used to cancel the contract. Talk to your Realtor for advice!