Real Estate / 2 min read
Parties to real estate transactions will often see an "as-is" clause in their contracts, but rarely do they understand the full legal effect of this clause. According to the Texas Supreme Court, "When buyers agree to purchase something 'as-is,' they agree to make their own appraisal of the bargain and to accept the risk that they may be wrong. The seller gives no assurances, express or implied, concerning the value or conditions of the thing sold." An "as-is" clause makes a buyer responsible for assessing the condition and value of a piece of real estate and then assume the risk that its value may be less than the purchase price.
However, even with an "as-is" clause, sellers of real estate are required to disclose known material defects concerning the property being sold. A material defect is often characterized as something that would affect the buyer's decision to purchase the property. Failure to disclose material defects can give buyers the right to rescind the sale and possibly pursue additional damages for monetary costs incurred in reliance on a seller's bad faith representations or omissions.
Below are some tips for both buyers and sellers when working with "As-is" real estate transactions:
Buyers:
- When negotiating a real estate contract, request representations and warranties from the seller.
- If your real estate contract includes an "as-is" clause, make sure you review and understand it.
- Be diligent. Conduct a thorough inspection of the property and ask the seller for all relevant information affecting the property.
- Remember, "as-is" clauses will not protect a seller in the event of fraud or misrepresentation.
Sellers:
- Avoid making representations and warranties in your real estate contract.
- When representations are made, be truthful and transparent.
- Disclose known material defects but avoid making unnecessary representations about the property.
- Allow the buyer to inspect the property and provide the buyer with any property information requested.
- Include an "as-is" clause in your real estate contract and state that the "as-is" clause shall survive closing and that it will be inserted into the deed conveying the property.
- Have the buyer acknowledge that the "as-is" clause was bargained for.
- Include language where the buyer acknowledges they are not relying on representations (or silence) of the seller and have conducted their own inspections.
- Ensure that the buyer is aware of the meaning and implications of the "as-is" clause (or that buyer's representative has explained it to them).