What Does “As Is” Mean?

Foreclosure and short-sale properties are all sold "AS IS". But what does "AS IS" really mean?

"AS IS" means that what you see is what you get. Ninety-nine percent of the time, the seller (bank) will not make any repairs to the property (the one percent is FHA financing-post on that coming soon). It also means that the extent of the seller's obligation with respect to title will be to provide insurable title to the purchaser.

Here's an excerpt from an "AS IS" clause from Freddie Mac:

"Purchaser understands that the seller obtained the property by foreclosure, deed in lieu or foreclosure, forfeiture or similar process and consequently, seller has little or no direct knowledge regarding the condition of the property. Purchaser accepts the Property in  "AS IS" condition at the date of the Contract of Sale, including, without limitation, any defects or environmental conditions affecting the Property, known or unknown.

Purchaser acknowledges that neither the seller nor its agents have made any warranties, implied or expressed, relating to the condition of the Property."

Here's an excerpt from an "AS IS" clause from IndyMac Bank:

"Buyer acknowledges and understands that the Property is being purchased and sold as-is, where-is and with all faults. Buyer further acknolwedges and understands that the Property was acquired by Seller through a foreclosure or other similar action and therefore, Seller is not an owner-occupant and Seller's information concerning the Property and its condition is extremely limited. Accordingly, Buyer acknowledges and understands that, except as otherwise disclosed in writing to Buyer, Seller is unaware of any latent defects in the Property or any appurtenant systems including, without limitation, plumbing, heating, air conditioning and electrical systems, fixtures, appliances, roof, sewers, septic, soil conditions, foundation, structural integrity, environmental condition, pool or related equipment. Seller makes no representations or warranties as to (i) the condition of the Property or any of the Property's systems or improvements, or (ii) the serviceability or fitness for a particular use of the Property or any component of the Property."

As you can see, "AS IS" clauses are also a huge C.Y.A. for the banks. As a buyer, you must understand that the property is sold "AS IS" and that you'll need cash and/or sweat equity of your own to fix it up.

For those of you that have the cash and/or sweat equity to perform the repairs, there are some great bank-owned deals out there, especially from Fannie Mae and Freddie Mac. For those who don't have the cash or sweat equity to invest in a foreclosure property, don't worry…there are great deals on foreclosures that require very little work, as well as on traditional resales.

NOTE: This is not meant as legal advice nor should it be taken as such. For guidance on any and all "AS IS" clauses and contracts in general, contact an attorney.

U.S. Foreclosure Statistics Show Mixed Signals

The most recent U.S. foreclosure statistics just released by RealtyTrac and CNN show mixed signals. September 2008 saw a 12 percent decline in foreclosure filings over August 2008, which is good. But it also was a 21 percent increase over September 2007, which is not so good.

Though the increase over last year is an important statistic to consider, the decline over last month is even more important because it's more relevant to how the current market is doing and where it's headed. If we see a continued decline in foreclosure filings as 2008 comes to an end, this will bode well for market in 2009. If not, the 2009 U.S. real estate market may not get off to such a great start.

What's interesting is that there's a quote in the CNN article that says,

The bad news: The housing market will be flooded with bank-owned homes. "We are estimating that by the end of this year, between one quarter and one third of all homes for sale will be bank owned properties," he said.

That could push down prices even more, perpetuating a vicious cycle, but it might also start to attract bargain hunters who may absorb some of the massive housing inventory.

Well, Loudoun County bank-owned and short-sale properties have made up one quarter to almost half of all homes for sale for almost 2 years now. And the bargain hunters and investors started coming out in packs to buy up that inventory well over a year ago and they're continuing to do so.

This just goes to show that Loudoun County and the DC metro area are ahead of the rest of the U.S. (as we usually are). Our boom market started before most of the country. The peak of our boom market (Summer of 2005) was ahead of most of the country. And the bottom of our bad market usually comes before the rest of the country's does. If they're calling for that "bad news" to happen just prior to the bottom for the U.S. housing market….well, it's already been happening here in Loudoun.