For years now we’ve been advised by real estate attorneys to use the FAR BAR AS IS purchase contract with right to inspect. The reason for this is that while it does protect the buyer, it takes some of the ambiguity out in determining if an item in the home is functioning as intended. To give you an example of why this has been the contract of choice, several years ago we had a client looking to purchase a condominium that had been renovated due to damages stemming from Chinese drywall. During the home inspection we found the granite counter top in the kitchen had been cracked in half around the sink during installation. The seller epoxied the seams, but the buyers were not pleased, as while the seam was cleverly joined with the epoxy, the joint was still very rough to the touch. The seller said he wasn’t going to replace the counter top and the buyer didn’t want to take it “as is,” so the buyer used their right during the inspection period to cancel the contract and get a full refund of their deposit. When speaking with the law firm who suggested we use this purchase agreement, the attorney stated, “this is why we tell you to use this purchase agreement as while the buyer wasn’t pleased with the look of the repaired granite, it was still functioning as intended as it was supporting weight and wasn’t leaking, thus it was performing as designed. If your buyer hadn’t used this “AS IS” contract that we have suggested, they wouldn’t have had the ability to cancel their contract and receive a full refund of their deposit.”
However, during this market this “AS IS” contract is being used in a manner that wasn’t originally intended. Since homes have been selling at such a frantic pace, many buyers who are out of town are using this contract to purchase properties sight unseen, or only seen virtually. Then once they arrive they use their inspection period to determine if they want to continue moving forward with the purchase of the property or cancel the contract now that they are viewing the property in person. Some buyers have even submitted contracts on several properties, had them accepted, and then used their inspection period to cancel off those properties that didn’t appeal to them and keep the one that does.
To counter this approach many sellers are starting to request the contract with repair terms that can be capped be used as it takes away the buyers ability to cancel the contract in “the buyer’s sole discretion.” Since offers have accelerated at the pace they have due to low inventory levels, bidding wars are more commonplace, resulting in purchase offers where the purchase price cannot be supported by an appraisal. To avoid a contract being cancelled by the buyer due to the offer they made not being supported by an appraisal, sellers are now requesting appraisal contingencies to be removed from the contract in many cases.