Every state has different real estate laws and procedures and this blog is written for Georgia’s procedures of purchasing AS IS short sale and foreclosure properties.
In the GAR (Georgia Association of Realtors) standard contracts, there are two ways to purchase real estate: Due Diligence and AS IS. Since the bulk of real estate transactions currently are some form of distressed properties (REO Bank Foreclosures, Short Sales, Pre-Foreclosures) it is very important to understand the difference especially when the contract instructions state that property is sold AS IS.
First allow me to define the differences:
DUE DILIGENCE – means the purchaser would have a mutually agreed upon period of days to inspect the property and its surroundings. This includes the actual inspection of the home structure, systems, roof, etc. It also includes any additional tests the purchaser may want to perform during this time period: termite inspections, radon gas, soil tests and inspecting the neighborhood and surroundings. The later would include research for any landfills, high voltage power lines, registered sex offenders, etc. The costs and work of these are the sole responsibility of the buyer.
AS IS – means the purchaser is forgoing all inspections purchasing the property AS IS with any and all faults whether known or unknown. The Seller will not perform repairs of any defects.
What becomes confusing is when the Bank/Seller advertises the property AS IS. This does not mean that the Seller will not allow inspections to take place as it is the right of the purchaser to inspect the premises. What this means is that after the inspections have been completed, the purchaser understands that no matter the outcome, the seller is stating they will not make any repairs. In distressed sales (foreclosures and short sales) purchasers should always choose the “due diligence” route and perform inspections knowing that within the timeframe they can either accept the property “as is” OR terminate the contract and receive their earnest money back (within the due diligence time frame).
Now with that being said, if a purchaser submits an offer on a bank owned foreclosed property and inspection finds issues that would not allow purchaser to move forward with the property through their VA or FHA appraisal, I have seen instances where banks did in fact complete repairs. You may be saying that this is in direct conflict of what is written above and you are correct! Since the end of 100% financing in 2008, the two most popular financing options have become FHA and VA loans due to their lower required levels of down payment. As of 2010, VA still offers 100% financing and FHA offers 96.5% financing. Since the majority of current buyers are using these two types of loans, if the home does not pass FHA or VA minimal inspection guidelines then the bank realizes it will take longer to sell therefore the required repairs must take place to get these homes off their books. There are two common solutions to this problem:
- Some banks will pay for the repair costs out of their own budget
- Some banks will repair however roll the repair costs back on top of the sales price
It is important for the purchaser or purchaser’s agent to inquire before submitting an offer whether the property will pass FHA or VA inspection.
