Let the Buyer Beware!

Caveat Emptor (Buyer Beware)!

  As of January 2017, the Arizona Association of Realtors has adopted a new purchase contract for use by Realtors in the state of Arizona. One important consideration in this contract is a move back to selling properties in As-Is Condition.   Many may believe that this means we have regressed to the old days of Caveat Emptor or “ Let the Buyer Beware”. This retreats back to when I was first licensed and if you offered on a property it was up to the buyer to determine the suitability and condition of the property BEFORE they entered into a purchase contract. This is the exact verbiage from the purchase contract. Condition of Premises: BUYER AND SELLER AGREE THE PREMISES ARE BEING SOLD IN ITS PRESENT PHYSICAL CONDITION AS OF THE DATE OF CONTRACT ACCEPTANCE.

Seller makes no warranty to Buyer, either express or implied, as to the condition, zoning, or fitness for any particular use or purpose of the Premises. However, Seller shall maintain and repair the Premises so that at the earlier of possession or COE: (i) the Premises, including all personal property included in the sale, will be in substantially the same condition as on the date of Contract acceptance; and (ii) all personal property not included in the sale and debris will be removed from the Premises”

     This constitutes a huge change from our prior standard contract. Under the old contract, sellers were required to warranty and maintain all of the major systems of the home as “warranted” items. This led to the ability of buyer’s to insist on repairs at the last minute based on the “warranted” status of some of the items even though they had not been discovered in the inspection period. This will no longer be the case.

     But hold the phone, the meaning of an AS-IS sale of a home has long been the subject of misinterpretation and there are many other provisions of the contract and the industry which will likely diffuse the situation.

     Let’s start with what this does not mean. It does not mean that the seller is relieved from having to disclose any known defects or matters that would materially affect the buyer’s decision to buy that particular home. For instance, a seller is still obligated to disclose any leaks in the roof or plumbing, termite or scorpion infestations and even potentially noisy neighbors. More legal actions arise from seller’s failing to disclose known defects in a home than any other source. Many seller’s are under the mistaken belief before this change that if they sold the home in AS-IS condition it alleviated this duty to disclose which is NOT the case. This move to every sale being in AS-IS condition will likely only encourage that behavior.

     Furthermore, selling a home in AS-IS condition does not change the buyer’s

ability to perform whatever kind of inspection they choose and request repairs of the property based on the findings or be released from the contract, at their discretion. If anything, an AS-IS clause will make the buyers more diligent as to the condition of a property. I can already envision the conversation on every repair request we receive being “but we sold the property in AS-IS condition, I shouldn't have to do any repairs.” This is absolutely true but remember, they don’t have to buy your home either.

Another major consideration that circumvents the AS-Is clause is that the property must still meet the lending requirements for what ever type of financing that the buyer is going to obtain. As much as we would like every transaction to be cash, the reality is upwards of 90% in our area will involve some type of financing. FHA requires that all of the major systems within the home to be working and they are checked by the appraiser. Common requirements from the appraiser that we see are Heating or AC not working, smoke detectors not working, plumbing leaks, lack of flooring and chipping and pealing paint. All of these can be requirements to satisfy the appraiser, and thereby the lender, that they are lending on a satisfactory property.

Additionally and especially on VA and FHA loans, we routinely have issues on the termite report. A clean termite report is a requirement for almost every type of loan. Most of the time, the report is not acceptable because of conditions conducive to termites rather than the actual presence of termites. These include faulty grade (my favorite because it is a fine balance between water sloping toward the home and the grade being too high so that it covers the entire stem wall), excessive moisture (leaks under the sinks), earth to wood contact and most commonly contact between plants and the home. All of these must be corrected and inspected before lending can occur.

So at this point you must be asking yourself what protection this change does bring to the seller. Great question! In theory, the seller is protected from some unexpected expenses. Under the old version, let’s say an air conditioning unit died in the middle of the escrow period . The seller would then be obligated to repair (if possible) or replace the unit as a warranted item. If the seller was unable to do this he was still contractually obligated to complete the sale. Under the new system, the seller is not obligated to fix any warranted items or major systems of the home. Keep in mind that this also means that the buyer is not obligated to buy a home with a defective AC or other major system of the home.

The reality of all of this is buyers will continue to ask for repairs as a result of inspections and seller will still have the ability to agree or disagree with those requests.

If you are looking for a true professional to assist you with the sale of your Home, Give the Al Gage Team a call or an email.