Much confusion swirls around the words “as-is.” Regularly, we hear about homes that suffer disasters midway through the transaction, with water damage or tenant antics causing substantial harm to the condition of the property. In many of these situations, sellers haughtily claim that the Buyer has obtained the property with that water damage or tenant damage because, look within the contract, it has the words “as-is.” Sellers grasp onto the term like a life raft and argue that it means the Buyer has accepted the condition of the property at closing in exactly the condition it is in at closing. If the barn tipped over the day before closing, that’s a Buyer problem – the “as-is” ensures it.
It’s a novel theory, but not one that is borne out by contract law. One must always remember that the parties to a real estate contract bind themselves to the terms at the time of mutual agreement. Not at the moment of closing. Sure, closing will be the moment when the deed transfers and the ownership will shift to the Buyer, but the actual contract itself is signed and made binding at the moment of mutual acceptance. Hence, when the contract says “I, the Buyer, am accepting the condition of the property as-is, where-is,” that doesn’t mean they are accepting all the dings and scrapes that seller puts on the property before closing, but rather that they are accepting the property in exactly the condition it is in at the time of the offer, subject to the terms of the contract. If there happens to be a nutria colony living beneath the house that nobody knew about when the Buyer made the offer? The Buyer has accepted those rodents as part of their offer and can’t later claim “the Seller needs to remove that nutria colony otherwise I don’t have the house in the condition it was in when I made my offer.” You may be thinking, “But can’t my Buyer do a pest inspection?” Correct, they can. The contract will typically grant the right to do various inspections and grant the Buyer the right to request certain repairs. If the Seller refuses the repairs, the Buyer is left with purchasing the property in the condition it was in at the time of the offer. If the Seller agrees to the repairs, who cares what the contract says about “as-is, where-is”? The parties have agreed to amend the terms to address the rodents. In other words, while the Buyer is getting the property in the offer-era condition, the contract also grants the Buyer certain rights to inspect and inquire and potentially back out of the contract.
It is worth noting that Sellers are not permitted to profit from fraud or misrepresentation, and the “as-is” disclaimer does not avoid seller liability for things the Seller conceals or lies about. If the Seller knew about the nutria colony burrowing around in the foundations, the failure to disclose that information would be a material misrepresentation, and a Buyer termination would likely not result in the Seller getting the earnest money, in part because the Seller omitted material information and induced the Buyer into the transaction. Seller can’t lean on the “as-is” provision as a defense in that scenario.