What does it mean to buy a house as-is?
March 23, 2023
If you’ve been browsing for houses on real estate websites, you may see some houses being sold “as-is.” If you plan to make an offer and buy a house as-is, it’s good to know exactly what you’re getting yourself into. Why might the seller be selling it as-is and what exactly does that mean? It could be a red flag that seller knows there are major problems with the house.
Buying an “as-is” home means that the home is being sold in its present condition. You will be responsible for all repairs and you typically cannot negotiate that the seller fix any issues before you move in like you could in a normal sale. These homes will usually be sold at a lower price because of the condition and the responsibility that you will bear after purchasing.
When you are searching for a house in a hot market, that low price can look especially attractive. Real estate investors may see these homes as a great opportunity to buy cheap real estate and flip it for a profit. But for homebuyers looking to live on the property, as-is homes might be a challenge that they, or their lender, aren’t equipped to take on.
What should I do before I buy a house as-is?
The first thing you should do is make sure that your type of loan will work with the property. Conventional real estate loans may only allow you to buy as-is homes with minor repairs or maintenance needed. This would be mostly cosmetic defects that wouldn’t prevent you from living in the house. Any defects in the home that would deem it unlivable in its current state – like a collapsed roof, cracked foundation, or unfinished plumbing – could mean that your lender will only consider a construction or rehab loan for the property. Talk with your loan officer to know your loan’s limitations.
Learn what repairs you’ll need to make by getting an inspection before putting in an offer. Sellers are required to disclose things like lead paint and septic systems. However, Massachusetts has no laws that require a seller to disclose major repairs to the buyer – unless they ask about it. Buying an as-is home does not prevent you from having an inspection. Additionally, your offer can still be contracted as contingent upon the results of that inspection. This means if the inspection does find problems you aren’t willing to fix, you’ll be able to walk away from the deal and keep your deposit. Without an inspection contingency in place, backing out of the sale would mean forfeiting your deposit to the seller.
If a seller is pushing to waive an inspection, they likely know something is wrong. It’s in the seller’s best interest to allow all potential buyers to have an inspection so they don’t appear dishonest.
Know before you buy
Ask questions before you commit to anything. Determine whether you are prepared to take on the challenges that will come with owning that home. There are also plenty of reasons not related to repairs that a house might be sold as-is. The most common reasons are:
- The house is a foreclosure and a bank now owns it.
- The homeowner passed away and the person who inherited the home doesn’t know what may be wrong with it but needs to sell.
- The seller needs to make a sale quickly and doesn’t have time to make any repairs or wait for a contractor to finish making repairs before they move.
- The seller is in debt and can’t afford to maintain the property.
Are there benefits to buying a home as-is?
There are benefits to buying a home as-is. Since as-is homes are less desirable, you will have less competition when making an offer. Real estate investors and contractors can take advantage of the low prices to flip a fixer-upper and walk away with a nice chunk of change when the project is finished. Alternatively, they can hang on to their flipped property and rent it for a steady flow of passive income.
Sellers of as-is homes usually choose to list that way so they can get the property off their hands quickly. With that in mind, you may be able to negotiate an even lower sale price after your inspection. The seller may accept simply because they don’t want to hang on to the house any longer. If the deal is good enough, you might decide there’s enough money in your budget to make the repairs yourself.
The bottom line is that if you buy a house as-is, it’s going to need work. It’s up to you to decide whether it’s worth it or if it will just turn into a money pit.