What on earth is an "as is contract" in real estate?
If you’ve previously completed a real estate transaction or have been researching Tampa real estate options recently, you might have heard the term as-is contract.
An "as-is clause" in a FL real estate contract essentially protects a seller from any liability.
Ultimately, the purpose of an as-is clause is to force the buyer to rely upon their own investigative skills to decide whether to purchase the property.
An as-is clause protects a seller from the legal responsibility of disclosing property defects if they are unaware of the flaws.
Sellers are also not obligated to disclose an issue if it is one that the buyer’s reasonable investigation can quickly discover.
After a recent inspection, I returned to an off-market property seller with a list of things that needed to be fixed before my client would put in an offer.
The buyer said they were offering the contract with an as-is clause.
I quickly realized that this is an essential topic of conversation, so I sat down virtually with John Hemenway to dive deeper into the subject.
Here's the transcript of the video interview...
Everything You Need to Know About As-Is Contracts in Real Estate
Let’s jump right into everything you need to know about as-is contracts with our question and answer session with real estate attorney John Hemenway.
Attorney Hemenway is with Bivins & Hemenway law firm in Valrico and the Brandon suburb of Tampa.
Hemenway’s firm has been practicing real estate law for 15 years, including business law, trusts, and estate law.
What Does a Real Estate Lawyer Do?
In other words, How Do Business, Trust, and Estate Laws Connect to Real Estate?
My practice handles a lot of cases related to wills, trusts, and estate administration. This ties directly into the real estate practice because we see a lot of title issues.
We help clients pass properties through probate estates or handle properties held in trust.
It’s a core part of our everyday business interactions but sets the stage for my knowledge of as-is contracts.
Why Should Buyers or Sellers Hire a Real Estate Attorney During the Real Estate Transaction Process?
One of the most significant benefits of hiring a real estate attorney is peace of mind.
Most people don’t buy or sell a house many times in their lives, so the process can be overwhelming.
Documentation can be confusing, and contracts are generally long. A real estate attorney can help the buyer or seller understand their obligations and their rights under an agreement before they sign.
In loan documents, real estate attorneys help answer title insurance commitment questions and explain what title insurance covers.
Essentially, a real estate attorney’s role is to help interpret all the legal language both parties see throughout the transaction process.
They will help you understand what the terms of your contract mean to you.
Real estate attorneys will also advise you on how your contract terms will help you or, in some cases, hurt you.
What Is a Title Commitment?
Some real estate contracts come with specific legal requirements.
So, if you have a loan, for example, you are required to have title insurance.
Title insurance protects the insured from another party claiming they own the property or have a right to use some of the property.
During the sales process, the title commitment lays out the terms of the proposed title insurance policy.
It is issued for the buyer to review and includes exceptions to coverage and details anything the seller is responsible for through their title.
We most frequently advise clients on seller responsibilities, along with interpreting the legal requirements and exceptions of your coverage.
Explain an Example of an Exception You Would See in a Title Commitment
Exceptions can range from basic to complicated.
For example, if you reside in a community with a homeowners association, there may be an exception for the items owned by the association.
The association could also include details about the community’s right to use the common areas of the parks and other amenities.
In some cases, you may find unusual exceptions.
This can include potential liens that weren’t fully cleared and may encumber the property’s use.
The most unusual type of exception is typically some sort of easement. While you won’t generally see this in a neighborhood property, you can see it on older properties located on a plot of land.
Many times the easement will be an access easement for one of the neighboring properties. When the required access crosses over properties, the title commitment exception will include that access.
These exceptions can often sneak up on clients, but an attorney can easily spot an issue.
Do Real Estate Attorneys Generally Help Resolve Issues with Title Commitment Exceptions?
Absolutely. A real estate attorney would help review your title commitment.
If something needs to be plotted or is currently plotted onto the survey, they would research why and ensure the exception’s legal validity.
Some title searches will pull up a title commitment that no longer applies.
Not all invalid exceptions are caught by an underwriter.
Your real estate attorney will go through your policy in detail and give you peace of mind that everything is prepared as it should be.
At What Stage of the Process Should Either Client Hire a Real Estate Attorney?
When a Buyer and a Seller Come Together, They Form a Legal Agreement.
In fact, when it comes to hiring a real estate attorney, the rule of thumb is always "the earlier, the better."
Hearing that from a real estate attorney can seem like a biased answer.
However, from the moment the buyer and seller agreement begins, hiring an attorney can ensure you get the best negotiations and contract terms.
When it comes to more complex legal issues or large contracts, an attorney can help you interpret the legal documentation and resolve disputes.
In some cases, clients simply need help interpreting the legal terminology used in real estate contracts. For example, what is an elevation certificate, and why would I care?
People should also call an attorney at the beginning of the transaction process for customized addendums.
Customized addendums use highly unusual terms for some party’s requests. We have helped several clients draft those addendums, so they accurately reflect their terms.
Any type of issue or question can come up in the real estate process, so having an attorney early can ensure your transaction’s smooth completion.
If you don’t hire an attorney at the beginning of the process, you can call one in at any point throughout the transaction.
Our firm has been brought in during inspections, for example. If there’s a concern about what the buyer is asking the seller to do during the inspection period, the seller might ask an attorney for help.
Likewise, suppose there’s a concern about what the seller won’t allow. In that case, clients will call to have an attorney look over the contract to verify validity.
Finally, the title and closing stage of the process comes into play. The title stage is when you should almost always call an attorney because several legal documents need to be reviewed.
Before you sign your closing papers, you should undoubtedly consult a legal professional to make sure everything you agreed to is included in the scope of your contract.
Are Buyers and Sellers Allowed to Use the Same Real Estate Attorney?
Buyers and sellers cannot use the same attorney for one apparent reason - conflict of interest.
If an attorney were representing both sides, how could they effectively work towards their client’s best interest?
While you hope that everyone’s best interest is represented in the real estate process, the fact remains that it is a business transaction.
Therefore, you need someone to be on your side who will ensure the contract protects your rights and your best interest.
Even if there is no open conflict between parties and the transaction appears to be running smoothly, the nature of attorney representation is that one attorney can’t fully represent both sides.
Are Real Estate Agents Allowed to Interpret Contracts for Clients?
The Florida Bar Association is stringent when it comes to non-licensed attorneys engaging in the unlicensed practice of law.
There’s a fine line when it comes to interpreting contracts.
While anyone can read a legal document and offer input if they are involved in the process, advising someone on what the documentation content means falls into the practice of law.
From a client’s perspective, you don’t want to ask someone for legal advice if they don’t have the expertise to advise you properly.
From a real estate agent’s perspective, advising a client on a topic you don’t have professional experience in can be a potential liability.
Therefore, on either end, you simply don’t want the liability of giving or getting the wrong advice, especially with a significant transaction like buying or selling property.
What is an As-Is Contract?
An as-is contract is the most unusual type of real estate transaction you will see.
This type of contract gives the buyer the chance to inspect a property to determine whether its current condition acceptable.
When a buyer makes an offer through an as-is contract, the seller is not obligated to make repairs.
If the buyer is not happy during the inspection process, they can cancel the contract.
They can also try to renegotiate the price if extensive repairs are needed.
The seller is not required to disclose any issues that would be obvious to the buyer during an inspection. However, there is a disclosure obligation for the seller.
For example, suppose there was prior water damage or structural issues that aren’t obvious during the inspection. In that case, the seller must disclose these issues.
Regardless, the seller is never required to handle repairs if the buyer and seller enter an agreement through as-is contracts.
What Can Typically Go Wrong on Either Side with As-Is Contracts?
Anything can happen.
Most issues with as-is contracts come down to miscommunication.
For example, a buyer might expect that the family room’s existing curtains would come with the house, but the seller took them during the move.
An attorney can look at the contract, sort through disclosure obligations, determine liability, and advise on any other as-is contract issues.
Between your real estate agent and your attorney, you should find a resolution to almost any problem that will arise through the real estate process.
Can a Seller Back Out During the Contract Period without Repercussion?
Sellers can’t back out during the contract period without repercussion.
While the buyer can back out through the inspection process for any reason, the seller doesn’t have the same option.
If a better offer comes along or the seller changes their mind, they simply can’t break the contract. If a seller does back out, they are subject to a negotiated exit.
Most likely, that would mean refunding the deposit.
In some escalated situations, the buyer can potentially file a lawsuit and move to force the closing of the sale.
When it comes time to buy or sell a property, it’s vital to have a team of professionals assembled to get you the best results.
- a great real estate agent to sell your property or find a new property within your requirements.
- an attorney who is experienced with the legal documentation, obligations, and negotiations involved in real estate transactions.
- a good lender team to offer the best mortgage rates.
Luckily, once you find an excellent real estate agent and attorney, they’ll have a wealth of knowledge that works in your best interest.
The right agent and attorney will have the resources you need to assemble the best team for your needs, from home inspectors to contractors.
I extend my heartfelt thanks to real estate attorney John Hemenway of Bivins & Hemenway for his time and guidance in helping us understand the basics of as-is contracts.
For more information, you can find him online here or get in touch by phone at 813-643-4900.
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