A Primer on "As Is" Sales

What is an "as is" sale?

As real estate professionals, there are times when we are directed by the owner of the property to offer the property for sale on an "as is" basis.  The intent of the owner may be to emphasize that the owner is not willing to make repairs.  In other cases, it is the intent of the owner to limit both the right to inspect and the owner's responsibility for repairs.  The overall purpose of "as is" language is to shift the economic risk of defects from owner/seller to the purchaser. 

When is an "as is" sale appropriate?

An "as is" sale is appropriate under two primary circumanstances:

•  When an owner has limited knowledge of condition of the property (e.g. probate estates or foreclosures), the use of "as is" language is appropriate.

•  When a property is in a state of disrepair, the use of "as is" language is appropriate as long as the owner/seller has fully and accurately disclosed known defects.  "As is" language will not protect the owner and/or listing agent from the assertion of a fraud claim where "known defects" are not disclosed or the disclosures are incomplete, inaccurate or misleading.    

Why you shouldn't just use the phrase "as is"?

Often, real estate professionals simply write into a form sales contract the phrase "as is."  However, this phrase may or may not be enforceable and may be too vague to accomplish its intended purpose.  Disputes often arise as to what is meant by the phrase "as is."  For example, does the "as is" language only limit objections based on the condition of the property?  Does it disclaim warranties associated with habitability or suitability of the property for a specific use (ie. occupancy as a residence)?  Does it disclaim objections arising from fence or driveway encroachments?  Unfortunately, when disputes arise, parties often assert that their intent was to disclaim all of these potential issues. 

Who should draft the "as is" clause?

Instead of engaging in the unauthorized practice of law, we suggest our customers to have the provision reviewed and approved by their attorney.  In the alternative, we have the provision reviewed by the real estate brokerage's attorney.  Even in states that permit real estate professionals to go beyond the use of approved forms and to draft provisions, we still make the same recommendations.

What should be included in an "as is" clause?  And, why?

Here is a sample provision for an "as is" clause used in our commercial sale contracts.  Beware:  It may not be suitable for residential sales and may cause the reader to have blurred eyes and headaches.

Provision - Disclaimer of Warranties:

Except as is otherwise expressly provided in this contract, seller hereby specifically disclaims any warranty (oral or written) concerning:

(1)      the nature and condition of the property and its suitability for any and     all activities and uses that buyer may elect to conduct on the property;

(2)      the manner, construction, condition and state of repair or lack of repair of the improvements;

(3)      the nature and extent of any right-of-way, lien, encumbrance, license,     reservation, condition, or otherwise;

(4)      the compliance of the property or its operation with any laws, rules, ordinances or regulations of any government or other body, it being    specifically understood that buyer shall have full opportunity, during the inspection period, to determine for itself the condition of the   property; and

(5)      any other matter whatsoever except as expressly set forth in this contract.

Commentary:  The purpose of this provision is to disclaim any warranty that may have been made in connection with the sale.  If you simply use the term "as is", it may be argued that you are only limiting warranties associated with the physical condition or state of repair of the property and not conditions that impact the use of the property.

Provision - As Is Clause:

Except as is otherwise expressly provided in this contract, the sale of the property as provided for in this contract is made on a strictly "as is" "where is" basis as of the closing date. except as otherwise expressly provided in this contract,   Buyer expressly acknowledges that, in consideration of the agreements of seller in this contract, seller makes no warranty or representation, express or implied, or arising by operation of law, including, but in no way limited to, any warranty of quantity, quality, condition, habitability, merchantability, suitability or fitness for a particular purpose of the property, any improvements located on the property or any soil conditions related to the property. Buyer specifically acknowledges that buyer is not relying on (and seller hereby disclaims and renounces) any representations or warranties made by or on behalf of seller of any kind or nature whatsoever, except as is otherwise expressly provided in this contract.

Commentary:  The purpose of the "as is" and "where is" language is to clearly signify that the property is being purchased by the buyer in its condition as of the date of closing.  The second sentence is intended to disclaim any warranties and to signify that the purchaser is not relying on any representation made by the seller or the listing agent in such documents as the disclosure statement or the MLS listing.  The third sentence is intended to clearly indicate that the buyer is not relying on any statements or representations made by the seller or the listing agent and is instead making the purchase based solely on his or her observations and inspections.

Provision - Environmental Conditions:

Except as otherwise expressly provided in this contract, buyer, for buyer and buyer's successors and assigns, hereby releases seller from and waives any and all claims and liabilities against seller for, related to, or in connection with, any environmental condition at the property (or the presence of any matter or substance relating to the environmental condition of the property), including, but not limited to, claims and/or liabilities relating to (in any manner whatsoever) any hazardous, toxic or dangerous materials or substances located in, at, about or under the property, or for any and allclaims or causes of action (actual or threatened) based upon, in connection with or arising out of the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. §9601 et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. §6901 et seq.; and the Superfund Amendments and Reauthorization Act, 42 U.S.C. §9601 et seq. or any other claim or cause of action (including any federal or state based statutory, regulatory or common law cause of action) related to  environmental matters or liability with respect to or affecting the property. buyer represents to seller that buyer has conducted, or will conduct before closing, such investigations of the property, including but not limited to, the physical and  environmental conditions thereof, as buyer deems necessary to satisfy itself as to the condition of the property and the existence or nonexistence or curative action to be taken with respect to any hazardous or toxic substances on or discharged from the property and will rely solely on same and not on any information provided by or on behalf of seller or its agents or employees with respect thereto, other than such representations, warranties, and covenants of seller as are expressly set forth in this contract. upon closing, except as otherwise expressly provided herein, buyer shall assume the risk that adverse matters, including, but not limited to, construction defects and adverse physical and environmental conditions, may not have been revealed by buyer's investigations, and buyer, on closing, shall be deemed to have waived, relinquished, and released seller from and against anyand all claims, demands, causes of action (including causes of action in tort), losses, damages, liabilities, costs, and expenses (including attorneys' fees and court costs) of any and every kind or character, known or unknown,  that buyer might have asserted or alleged against seller, at any time by reason of or arising out of any latent or patent construction defects or physical conditions, violations of any applicable laws (including, without limitation, any environmental laws) and any and all other acts, omissions, events, circumstances, or matters regarding the property. except as otherwise expressly provided in this contract, buyer agrees that should any cleanup, remediation, or removal of hazardous substances or other environmental conditions on the property be required after the date of closing, such cleanup, removal, or remediation shall be the responsibility of and shall be performed at the sole cost and expense of buyer.

Commentary:  Admittedly, this provision is overkill for a residential transaction.  However, environmental conditions associated with lead paint, asbestos, well water contamination, mold, radon, overhead power lines, airport noise, and methaphedamine production should be addressed and disclaimed.

Provision - Benefit of the Bargain Provision:

Buyer acknowledges and agrees that the provisions contained in this section __ were a material factor in seller's acceptance of the purchase price and that seller was unwilling to sell the property to buyer unless seller was released as expressly set forth above. buyer, with buyer's counsel, has fully reviewed the disclaimers and waivers set forth in this contract and understands their significance and effect.   Buyer acknowledges and agrees that the disclaimers and other agreements set forth in this contract are an integral part of this contract, and that seller would not have agreed to sell the property to buyer for the purchase price without the disclaimers and other agreements set forth in this contract. the terms and conditions of this section __ will expressly survive the closing and will not merge with the provisions of any closing documents.

Commentary:  This provision is to establish that the condition of the property and the risk of possible problems associated with the condition of the property have been negotiated and the condition and risk factored into the sales price for the property.  It also is used to establish that the buyer has either had the provision reviewed by their legal counsel or has waived the right to seek legal counsel.  The purpose is to establish that the execution of sales contract with the provisions was made voluntarily, knowingly and in an informed manner.

The simple fact is that when you recommend to the seller or when the seller requests that the sale be made on an "as is" basis you should either use an approved form contract that has been specifically drafted for "as is" sales or should seek or recommend the owner to seek legal counsel to draft a provision that addresses the specific issues associated with the property and the sale.

Note:  The opinions and statements contained herein represent my personal opinions and observations.  These blog entries are not reviewed, endorsed or approved for publication by Gilded Age Sales, LLC.

Disclaimer:  The author is a licensed attorney.  However, the opinions and statements contained herein are for informational and discussion purposes only and shall not constitute the provision of legal advice.  Nothing contained herein shall establish an attorney-client relationship.   Readers are cautioned to seek legal counsel in their state before using or relying upon any of the information contained herein.