What is an ‘As Is’ Residential Contract?
What is an "As Is" Residential Contract for Sale and Purchase in Florida
An "As Is" Residential Contract for Sale and Purchase is a specific type of purchase agreement commonly used in the State of Florida. It is used to document the sale of residential real property, and it differs from a typical sales contract in that it contains a provision relieving the seller of responsibility for any defects in the property, defects that would otherwise be revealed through inspection. The "As Is" language allows the seller to fully disclose their knowledge of defects in the home in association with the contract.
The contract is often utilized when one or more of the parties is in a hurry to close a deal and is not willing to make repairs to the residence prior to the closing. This type of contract is common among banks and other property sellers who utilize foreclosure and short sale processes in the state .
The "As Is" contract does still require the seller to make necessary repairs to the home that are required by an insured lender, as these defects are usually documented during the closing process. There are also provisions that dictate what happens when inspections reveal unforeseen defects after the parties have executed the contract.
Home sellers must take the time to read and understand the implications of an "As Is" contract before signing. It can be difficult in the midst of an emotional selling experience to focus on all of the legalities involved in selling a house, but understanding how the agreement will impact you is very important.
Homebuyers should also read and understand the signed document, but it can be significantly more important for them to hire an experienced real estate attorney to help review the contract so they do not sign away their rights to address defects in the home.
Essential Elements of the Florida ‘As Is’ Contract
The Florida "As Is" Residential Contract for Sale and Purchase has a few key components which differ from the traditional residential contract. The first major component is inspection periods. While the traditional residential contract typically gives a set number of days for inspections, the "as is" contract has two types of inspection periods: the Initial Deposit Period and the Inspection Closing Date. The Initial Deposit Period functions like a traditional inspection period where the buyer may either complete the transaction or terminate. The second inspection period extends from the end of the Initial Deposit Period to the Inspection Closing Date. This second period allows the buyer additional time to inspect.
Another important distinction is the additional disclosures required by the Contract. Both buyers and sellers have document requests that are mandatory under the Contract. Perhaps the most important is the availability of any Homeowner’s Association documents. The seller must establish the availability of the Association and make it available for inspection to the buyer.
Finally, all "as is" residential contracts contain language for records of the sale. The seller of the property must submit complete copies of all offers made on the property, no matter how offensive or ill-matched to the listing price.
Buyer Benefits and Risks
Determining whether "as is" is the right choice for your client is critical, and the decision may ultimately be a trade-off between the amount of time it takes to get to "yes" and the number of repairs needed. Floridians who accept or submit an "as is" offer believe they are speeding the process. Buyers, and their lawyers, need to understand the risks, however.
Failure to negotiate repairs Mr. Buyer has selected an "as is" contract. His offer has been accepted, and inspections are completed. Mr. Buyer looks up from his repairs list and at his lawyer. "I thought we were going to get repairs made," he says. "My lawyer said we could just ask that a credit be provided at closing for the repairs. That should make both of us happy."
Mr. Buyer’s wishful thinking cannot make a seller provide a credit at closing for repairs. There is nothing in the "as is" contract that requires a seller to provide such a credit and nothing that authorizes a buyer to stop inspections. The buyer under the "as is" contract has the right to cancel the contract and walk away if the property is not in good repair, but the seller has no obligation to make repairs, or to provide credits, even if the property is in bad repair. That being said, the seller may perceive an appeal to the heart differently than an appeal to the pocketbook, and may make concessions not otherwise required by the contract. This approach may be the better strategy if multiple offers have been received on the property.
Repairs negotiated outside of the contract The developer lists properties, but has withdrawn the units from the MLS because extensive repairs are required. Mr. Buyer wants to see the properties as is and then attempt to negotiate the repairs outside of the contract. Mr. Buyer has been told that the market is ripe for this type of negotiation.
When can a buyer try to negotiate repairs outside of the contract? Practically speaking, the buyer can do so any time during the contract process, but it is expressly prohibited from doing so under the standard-form "as is" residential contract for sale and purchase if the seller has chosen to not make the property available for MLS input. The buyer in an "as is" contract must enter into the contract with the seller from the outset with the understanding that the seller has complete discretion to say no to all repair requests.
Clients should be aware that negotiation of repairs is a common occurrence in the residential real estate market. When repairs are necessary, and the seller of voluntarily decides to participate in the repair dialogue, the standard-form "as is" residential contract form requires the seller to consent to the buyer and the seller engaging in this process. If, however, the seller does not want to voluntarily engage with the buyer in this process, the seller can respond with the pre-printed language on the contract form: "The Seller shall not be obligated to make any repairs." In this circumstance, the buyer should not continue to make requests for repairs, or expect that further negotiation will be fruitful.
This negotiation process suggests that repairs or credits can be obtained successfully solely by treating negotiation of repairs as if it were a normal part of the sales process. This is not true. In the absence of a seller’s willingness to make repairs or a buyer’s willingness to abandon the repairs process altogether, most buyers will want the contractual provision initially agreed to that provides them with the broadest authority to cancel the contract to be the "as is" contract form.
Seller Obligations Under "As Is" Condition
Except for repairing the roof if the Buyer inspects for the roof and wants a warranty on it, the Seller is not required to make any repairs or improvements to the property in order to close the sale of the property. Therefore, it is important for Sellers to cover any deficiencies or problems they are aware of in the property prior to the Buyer making an offer. If there are problems the Seller is aware of, these should be disclosed to the Buyer so they can be considered when making an offer.
The Seller still has to be truthful. Deceit of a material fact, even in an "as-is" sale, creates a basis for a rescission of the contract and might also give rise to a civil lawsuit.
If a material fact is known by the Seller, but not disclosed to the Buyer, the Buyer might later be able to recover any damages sustained when the property is sold by proving that, but for the false or misleading statement made by the Seller, he or she would not have purchased the property in its present condition. See Arkebauer v. Naegele, 84 So. 2d 375 (Fla. 1955).
In addition, the Florida Real Estate Commission ("FREC") requires that Sellers make certain disclosures to potential buyers . Many of these disclosures, such as lead-based paint or lyric ordinances, are statutory requirements while others result from professional practice, ethics, and FREC rules and statutes. Those disclosures and their potential liabilities can have serious consequences that could even include criminal penalties.
"While the FREC does not directly regulate sellers and buyers of property, the FREC has a duty to protect the public against dishonest practices and methods of practicing real estate by regulating licensees." Florida Real Estate License Law and Legal Code, Third Edition, page 243. In addition, the Florida Real Estate Commission governs professional standards for more than 200,000 Florida real estate licensees that include sales associates, broker associates, brokers, and appraisers. In Florida, real estate licensees are governed by various statutes, rules, and regulations while unlicensed, private individuals are not.
However, buyers should not rely solely on the honesty and integrity of the seller. Buyers should inspect the property for any and all deficiencies that might exist prior to making an offer to purchase property. If relevant to the transaction, the parties often sign an addendum to contract addressing the FREC disclosures to be included.
Common Pitfalls and How to Avoid Them
Both buyers and sellers can fall into common traps when dealing with an "As Is" contract. Buyers frequently fail to realize the real consequences of saying "no more inspections," or that they are giving up their right of recission under the Florida Residential Seller Disclosure and Confession Law. All buyers should disclose anything suspicious uncovered during any part of the process. The seller really wants to know before signing as it helps the seller disclose their knowledge correctly. Sellers tend to have their own agents (if they bother at all) cut corners by saying "you already hired the inspector" or "good enough for the buyer, right?" Usually the buyer really is happy to proceed under those circumstances, after all, they finally found something they like. This can lead to serious misunderstandings and mistakes if there is a problem later. These types of problems occur often enough that the Florida Real Estate Commission suggests standard language references in their residential/relocation contract outlines to prevent them. A sampling of some of FREC’s boilerplate statements are: If the seller is entirely honest and discloses prior to contract a potentially problematic situation; then the buyer can’t complain about how the property was presented. If the property’s condition is hidden from the buyer for any reason by the seller then it is much harder to prove that the seller did not "willfully conceal" what he knew to be there. The liability is perhaps smaller than the $300 repair that came to your attention in the case study. It could have been much larger. The difference is the difference between ruining a sale and closing a deal.
Lawyers and Other Professionals
Real estate professionals, including agents and inspectors, play a crucial role in the "As Is" sales process. Only a licensed attorney can provide legal advice and discuss the interpretation of a legal document. A real estate agent can provide information on local practice and assist in the negotiation process, documents review , and closing process. An inspector examines a home for imperceptible defects not readily observable by non-licensed individuals. The listing agent will likely be the first person to encourage you to conduct a professional inspection of your home prior to letting buyers view it, so more repair issues can be addressed upfront and serious buyers won’t be scared off by problems they are not willing to address and/or pay for.