There is no question that, in some situations, an "As Is" sale can work well for both the buyer and seller. In those cases, the buyer can save money and the seller can maximize his net proceeds. To have a win-win transaction, however, there are many things to know about an As Is purchase.

As Is categories

Buying a house As Is can cover a multitude of scenarios. It could mean accepting just one item in its present condition. For example, a buyer might agree to be responsible for a $795 structural pest control report that included no active infestation or further inspections. Assuming it was from a known local company, this would not be considered especially risky.

On the other hand, I have seen a number of As Is purchases with well over $100,000 in known repairs. In sales such as this, all aspects of the property would be in As Is condition.

There is obviously a significant difference between these categories. Regardless of the fix-up cost, keep this concept in mind: when you buy As Is, you are buying the property and its problems. Assuming full seller and agent disclosure and a properly prepared purchase contract, you generally will have no recourse if you suddenly realize the home has become a money pit. Remember that the ultimate dollar figure for all the work is often not known until long after the sale.

Three types of buyers

There are predominantly three types of buyers who pursue As Is purchases: professional contractors; non-contractors with building/repair skills and experience; and "average" buyers with little or no contractor expertise who are hoping for a bargain.  Of the three, the third type is the most vulnerable, especially for homes that need extensive work.

There are some people who can learn as they go and be successful buying As Is fixers. Conversely, I have spoken with many who wished it had not cost them so much time, money and emotional energy to learn their lessons.

The inexperienced buyer can make a number of mistakes. First, he may rely on a relative or friend to guide him through the buying inspection process. Unless the helper is a professional in home inspections and/or repairs, problems can slip through the cracks. An in-depth analysis is essential when buying a home with an abundance of repair issues.

The second error a novice buyer tends to make is underestimating the skills necessary to perform the various repairs. The buyer often discovers how inadequate his abilities actually are, which leads to his third potential mistake. This is to miscalculate the cost of hiring contractors and tradespeople to fix the most pressing problems he later is unable to handle himself.

After close of escrow, this buyer often finds he cannot get quality work done within his budget. If, in order to save money, he hires non-licensed people to do the job without permits, he may subsequently appreciate why this was a mistake.

Although the first two types of buyers are the most logical for buying serious fixers, even they can fall into some unexpected snares. To complicate this further, the degree of risk is also associated with whether or not the buyer intends to live in the house as a primary residence, or intends to "turn" it for a profit.

Disclosures

The use of the words "As Is" does not change the legal requirement for a seller and his agent to disclose all material facts. A material fact is one that affects the value or desirability of the property. The buyer must make sure to receive and carefully read the "Transfer Disclosure Statement" (TDS) completed by the seller. A knowledgeable agent will point out possible areas of concern.

The necessity to provide a TDS is waived in certain situations, such as probate sales or transfers where the property was acquired in a trustee sale. Under either of these conditions, a current owner would still be required to disclose in writing any material facts he knows. He may not, however, be personally familiar with the property and, therefore,  would have nothing to disclose. This puts the buyer at the disadvantage of having to ferret out all problems on his own.

Final thoughts

A buyer who has a good sense of the homebuying process can save himself a lot of turmoil. This is especially true for As Is sales of properties that need extensive work. In Part 2, the final article of this series, I will cover other items that are essential for a buyer to discern before finalizing an As Is purchase.

Related Articles: As Is Pointers, Part 2; Not Just Termite, Part 1 and Part 2; Seller's Do's & Don'ts, Part 1 and Part 2; Buyers' Do's & Don'ts, Part 1 and Part 2