"AS IS" Clause in real estate purchase and sale agreement.

[Linh Pham]

I am a relatively inexperienced investor and am looking into purchasing my first two family house. I found an older home that needs some work and I am negotiating the contract with the seller. He insists on an "as is" clause in the contract. I am not sure what that is exactly means in the contract. Can somebody help me out here?

[Edward Schenkel]

That is a good question and anyone who is involved in real estate investing should know about the meaning of an "as is" clause. If you look at the way the courts explain an as is clause, the effect of such a clause is to shift the burden regarding  mistake or defect to the accepting party. In easy terms, what this means is that the Seller is not making an representations about the condition of the property. Often, contracts have a seller representation that the major systems (e.g. heating system, plumbing) are in working order. If a property is sold as is, there is no such representations. Therefore, it is very important to do a good inspection before you purchase a property as is (well you should do a good inspection anyways, but more important when it is sold as is). If there is any big problem with the property it is going to be difficult to sue the seller whereas you would likely have an easier time making such claim without the as-is clause. One exception to this is that seller cannot misrepresent something and then rely on the as-is clause. Also, if a property is sold as-is, it is implied that the seller will not make any adjustments based on the condition of the boiler, roof, etc (but you can certainly try!).

In short, an as is clause means you are accepting the property in the condition as it is in, the seller is making no representations with respect to the condition of the property, and the burden regarding mistake or defect is on the buyer.

Any other questions, feel free to ask!

Regards,

Ed Schenkel, Esq.