Sunday, January 15, 2017

All Home Sales are "As Is" Sales!

Last week I was in the first class in Tucson to learn about the changes to the Arizona Association of Realtors Purchase Contract. This new contract goes into effect on February 1, and I expect it will take many agents by surprise.

The biggest change is that all contracts are now "as is". In current Purchase Contract, seller must provide heating, cooling, plumbing, electrical and mechanical systems that work. No longer. Seller is only obligated to transfer the property in the same condition as it was at contract acceptance. How anyone proves that a system that is not working at close of escrow was working at contract acceptance is unknown. The home inspection report may be useful in documenting any changes in the condition of the property during the escrow period.

When I started in real estate in 1995, the seller had to provide a leak-free roof and rid the house of termites. Those requirements were removed from the contract several years ago. Now the seller isn't required to do anything except fix anything that broke during the escrow period.

The State of Arizona requires that a septic system be inspected and repaired at seller's expense, and this requirement is not affected by the new "as is" clause.

The buyer still retains the right to inspect the property and can request repairs within the inspection period, which is usually 10 days from contract acceptance. The big difference is the seller doesn't have to fix anything. If the seller won't make the repairs the buyer requests, the buyer can cancel the contract and get his earnest money refunded.

This is going to create a problem for buyers who are getting an FHA or VA mortgage. Appraisers for these government-insured mortgages sometimes produce a list of required repairs, and if the seller won't make the repairs, the buyer won't get a mortgage. Requirements for conventional mortgages (non-government insured) are not as strict, but the house still must be habitable.

So if a buyer wants to make get a mortgage on a house with broken windows, leaking roof, or no water service, they should write in the contract that the seller will fix these things. If the seller is unable or unwilling to make the house habitable, the buyer shouldn't waste $400 on home inspections and $375 on an appraisal, because he is not going to get a mortgage.

The class I took was taught by one of the agents involved in writing the new Purchase Contract. She said when the committee discussed the "as is" clause, eight people were against it, and three people were for it. They asked an attorney to research how this is handled in other states where real estate agents write purchase contracts. The attorney found that aside from Arizona, no other state requires the seller to fix anything.

Another change to the purchase contract is the seller now has to provide the Seller's Property Disclosure Statement (SPDS) within three days of contract acceptance, which is a slight improvement over the current five days. It is very important for the buyer to have the SPDS before doing their home inspection so the inspector can check out any problems the seller has disclosed.

I have always tried to get the SPDS before my buyers make an offer. This is especially important now that all sales are "as is". Unfortunately, most agents don't even think about asking their seller to complete the SPDS until the house is under contract, then the seller drags his feet completing the form. Some sellers just refuse to complete the SPDS. That is the topic for another blog post.

When I have a listing, I tell my sellers we are not putting the house on the market until the SPDS is complete. I add the SPDS to the documents attached to the MLS listing and require the buyer to submit the signed SPDS with their offer. This protects the seller from buyers who want to renegotiate or cancel the contract when they learn something about the house that the seller already knew.

Doing what I can to reduce the chaos in the world!

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