REAL Exclusive Magazine

“As Is” With Right to Inspect – Or Is It Really?

by Steven Greenberg

Many REALTORS^® are familiar with the phrase “as is,” but may be confused with the contractual provisions in the FAR-9 Contract regarding “as is” sales. Should a Buyer want a true “as is” with right to inspect and the right to cancel the Contract should the inspection reveal issues with the property that the Buyer cannot live with, the FAR-9 Comprehensive Addendum H may not protect the Buyer.

In its strictest sense, “as is” means that the Seller has no obligation to make repairs to the property. It does not, however, in any way limit the Seller’s obligation to disclose matters known to the Seller (or the Seller’s agent) which materially effect the value of the property and are not readily observable to the Buyer. It also does not negate the Seller’s obligation to maintain the property in the same condition from the Effective Date to the Closing Date.

Often times, the Seller has very limited knowledge as to the condition of the property and accordingly, wants to sell the property in its “as is” condition. In an effort to limit the Seller’s exposure regarding the condition of the property, provisions are included in the Contract by attaching the Comprehensive Addendum H to the Contract resulting in an “as is” Contract.

When property is being sold “as is,” the Seller is trying to eliminate any warranties as to the condition of the property. If after closing the Buyer sues the Seller for an undisclosed property defect, properly drafted “as is” language should eliminate a claim for breach of warranty. However, it will not be effective in a claim for fraud based on misrepresentation since the Seller and his agent have an obligation to disclose matters known to them which materially affect the value of the property and are not readily observable to the Buyer, even in an “as is” sale.

It is important for REALTORS^® to understand the provisions of the FAR-9 Contract as set forth in the Comprehensive Addendum H to the Contract. When Comprehensive Addendum H is used, the Repair Limits in paragraph 5(a) of the Contract became 0% and the Seller has no obligation to make repairs to the property. However, if the cost of  repairs exceeds the Repair Limit set forth in Comprehensive Addendum H, the Buyer has the right to terminate the Contract and receive a full refund of all Deposits paid by the Buyer. Realtors should be aware that this is not a true “as is” sale since there must actually be defects in the property exceeding the Repair Limit set forth in Comprehensive Addendum H to the Contract and the estimated cost of repairs must exceed the stated Repair Limit. Many Buyers (and REALTORS^®) are under the impression that in an “as is” sale, the Buyer has the right to terminate the Contract if any condition of the Property is unacceptable to the Buyer, i.e. the roof is not leaking, but is old and will need to be replaced in the very near future. Since the roof is not presently defective, the Buyer cannot terminate the Contract. Furthermore, the Buyer may end up in a battle with the Seller as to whether a particular condition of the property is really defective. In order to terminate the Contract under Comprehensive Addendum H, the Buyer is required to deliver to the Seller a copy of the home inspection report noting the property defect(s) that result in the defect(s) exceeding the Repair Limit. Of course, this opens the door to possible challenges by the Seller both as to whether the condition is really a defect under the Contract and whether the estimated cost of repairs in fact does exceed the Repair Limit. The Seller could hire their own contractors to refute both the existence of the defect(s) and the estimated cost of repairs.

REALTORS^® should be careful when explaining the “as is” provisions of Comprehensive Addendum H to their clients. There can be a very unhappy outcome when the Buyer learns that he/she may not be able to terminate the Contract although the Buyer is dissatisfied with a condition of the property that may result in a large expenditure in the near future. If the Buyer intends there to be a true “as is” Contract, be aware of the pitfalls of the FAR-9 Comprehensive Addendum H. It would be prudent of any Realtor to request the assistance of a Board Certified real estate attorney in the preparation of a true “as is” Contract.

Steven R. Greenberg has practiced Real Estate law in Sarasota since 1986 and is a shareholder in the law firm of Icard, Merrill, Cullis, Timm, Furen & Ginsburg, P.A. He is board certified by the Florida Bar in real property law and frequently lectures on matters involving real estate transactions. Steven may be reached at (941) 365-6216 or by calling Linda Witt, Director of Marketing, directly at (941) 586-4412 or by email at REinfo@icardmerrill.com.