Sold "as-is" is a prohibited disclaimer - sell property "as-disclosed"

By
Real Estate Agent with Keller William- Victor Valley Market Center

Sold "as-is" is a prohibited disclaimer - sell property "as-disclosed" (taken from my Ethics Book)

I'm taking my renewal classes and this is what I find in my Ethics Book, How do I avoid that statement all bank owned properties are sold "AS IS" below is the rest of the information taken from my book.... I have added my comments with ** 

A broker and his sales agents must disclose the physical nature and condition of a property when soliciting an offer to purchase.

Brokers and agents have a duty to timely disclose to all parties involved in a real estate transaction any significant physical aspects of a property that may affect the property's market value.

To comply with this duty, the listing broker (or seller) of a one- to-four unit residence must provide the buyer with a Transfer Disclosure Statement (TDS) prior to making an offer and disclose all defects then known to the broker or the seller. [Calif. Civil Code §§1102 et seq; see first tuesday Form 304]

**(you will not get a TDS with a bank owned property.)

To be effective, property disclosures must be made to the buyer before offers are prepared and prices agreed to. If not, the buyer may:

1. Cancel on discovery of the broker's failure to previously disclose. or

2. Close escrow and seek recovery of the costs to cure the belatedly disclosed and previously known defects, unless a contingency exists in the purchase agreement for further approval of the property's condition. Any attempt to have the buyer waive his right to the mandated property disclosure statement is unenforceable. Failure to disclose property conditions is against public policy. [CC §1102]

**(for one of my transaction the bank ask my client to get a Home Inspection before she could submit an offer)

** I think that using the AVID form is another way to safeguard Listing agent and Banks

The seller of one-to-four unit residential property must always prepare and deliver a Transfer Disclosure Statement (TDS).

Further, a broker has a general duty to all parties in any type of sales transaction to disclose at the earliest possible moment his awarness of any property defects.

For example, a seller's listing broker is aware the residence fails to conform to building and zoning regulations,a defect which if known to a buyer might affect the price he is willing to pay - a material fact.

The broker knows the buyer who is interested in making an offer is not aware of the violations and might reconsider the price he is willing to pay for the property if he learns of the violations. The broker decides not to disclose his knowledge of the defect.

In an attempt to cover the omission, the broker writes an "as- is" disclaimer provision into the purchase agreement, stating the buyer accepts the property in an as-is condition and has satisfied himself as to the property's conditions. After the buyer acquires the property, the city refuses to provide utility services to the residence due tothe building and zoning violations.

The buyer demands his money losses from the broker, claiming the broker breached his agency duty to disclose conditions of the property known to the broker.  The broker claims the buyer waived his right to collect money damages when he signed the purchase agreement with the "as- is" disclaimer (as is done with car sales).

Does an "as-is" disclaimer shield the broker from liability for the buyer's losses caused by the building and zoning violations?

No! The listing broker has a general duty, owed to all parties to a transaction, to disclose all property conditions that affect the value and marketability of the property which, due to an inspection, were or should have been known to the broker. This duty is not excused by writing an "as-is" disclaimer into the purchase agreement in lieu of making the factual disclosures. [Katz v. Department of Real Estate(1979) 96 CA3d 895]

Finally, public policy prohibits the sale of one-to-four unit residential property "as-is," causing most form publishers to eliminate boilerplate "as-is" clauses." [CC §1102.1]

** Question to my fellow realtors, most property state AS IS disclaimer, when advertising a bank owned property, how can I caution myself and my clients? As a listing agent and or a Buyer's agent... or am I making to much of this AS Is article from my ethics book?

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Show All Comments
Rainer
107,602
Larry Riggs
Re/Max Achievers - Frederick, MD
Your Frederick County Specialist

Sounds like CA law is way too complicated. Here in Maryland there is no such thing as a true "as-is" sale because seller or broker must disclose all known material defects. What saves us is that Md. law states that we are only responsible to discover things within the scope of our license. If there is an obvious defect it would be disclosed but licensees are not responsible to be electrical or structural experts. Also, Md. law states that REO's are exempt from our disclosure/disclaimer laws. You stated your law says you are required to disclose what you know of should have known. What determines what you should have known? I suspect the scope of license issue gives you some protection. I would consult an attorney.

In your scenario, how would the agent know current zoning or building code? Is it within the scope of your license in CA? Certainly I would disclose anything I know but, in Md. if you start researching things outside the scope of license you may be charged with the unauthorized practice of law. Complicated business we are in!!!

February 13, 2009 01:41 PM #1
Rainer
80,229
David Painter
Keller Williams Realty - Spartanburg, SC

Good to have you on Active Rain.  This is a good site for gathering information and interesting to see what others are blogging about. Contact us if we can be of service to you. We would be happy to send you a referral or to take good care of any referral you would send to us.

February 13, 2009 07:45 PM #2
Rainer
205,223
Sylvie Conde
Sutton Group-Associates Realty Inc., Brokerage - Toronto, ON
Broker, Toronto Real Estate

I guess rules are different everywhere.  Here, when we say the property is sold 'as is', we are simply trying to tell buyers that the sellers will not repair anything or do any renovations.  What you see is what you get, basically.  Buyers still get a home inspection and they still do their due dilligence, however, they cannot ask the seller to fix or remedy anything, because the seller has already basically said no to any of that, by saying it's being sold 'as is'.

We still disclose any defects we know of, right on the MLS listing, and in another form the seller provides.


Also, here, it is the buyer and the buyer's agent's responsibility to make sure they check and double check everything (get home inspections done, check building and zoning by-laws, etc.).  Other than anything obvious or anything we must disclose, it isn't the seller's agent's responsibility to do the buyer's agent's job.

It's a complicated business, but we all have a duty to our own clients, and it pays to be well informed.

February 13, 2009 11:43 PM #3
Ambassador
232,691
Scott Leaf
Keller Williams Elite Realty, Port Coquitlam, BC - Port Coquitlam, BC
Scott Leaf & Associates Real Estate Team

Syvie there is more to the às is where is`then that.  Royal Bank refuses to complete a disclosure statement for example and the reason for this is that they will not guarantee the condition of the home on possession day. 

They expect that the foreclosed upon individual will come back, break in, take all the appliances etc, and do damages to the property so the às is where is`also seems to mean `whenever it is`as well.

February 14, 2009 11:45 AM #4
Rainer
205,223
Sylvie Conde
Sutton Group-Associates Realty Inc., Brokerage - Toronto, ON
Broker, Toronto Real Estate

Scott, I have seen many agents go back to the listing, and edit out the 'as is', if there is a client who has financing from certain institutions.  I know that some banks will not financing 'as is', depending on the amount of downpayment the client has.  I think for me, and hopefully for the majority of cases, 'as is' never meant anything more than 'the seller will not repair anything'.  I know when it's the Bank that has the property on the market (power of sale), they don't guarantee the condition on possession, but I would think they can at least secure the house.  (I have seen boarded up windows and doors, so that sellers can't get back in to do damage....)

Having someone go back and destroy or damage the property is a totally different story; especially when it happens after the buyer has put an offer in.  (I guess in this case 'as is' may mean 'as it may be before closing', and that's different.) 

Too bad that people destroy and too bad that buyers can never be guaranteed to receive what they saw/purchased. 

February 14, 2009 01:11 PM #5
Rainmaker
780,108
Richard Weeks
Waller Group - Dallas, TX
Realtor, Associate Broker - Manager Business Development

As Is is a very confusing term.  In Texas our contract is an AS IS contract; however many agents slept through that part of the class.

February 16, 2009 05:22 PM #6
Rainmaker
660,761
Pacita Dimacali
Alain Pinel - Oakland, CA
Alameda/Contra Costa Counties CA

What makes this even more complicated is the AS IS Addendum that many offices require on REO sales.

February 17, 2009 01:14 PM #7
Rainer
29,658
Kieran and Cecelia Loughman
Exit Creative Reaty - North Port, FL

Hi Antonina

Thanks for the question. I am just reading and learning. In Florida, we are doing short sales with an As Is contract and a short sale addendum

Kieran Loughman

February 23, 2009 01:42 AM #8
Rainmaker
22,523
KB Collins
Keller Williams Associate Broker / Attorney - Bayside, NY

Can anyone forward me the short sale addendum would love to see different variation on them... Just to appease my legal mind.

Thanks. 

February 26, 2009 02:01 PM #9
Anonymous
Anonymous
El

Hi everyone,

I am in the market to buy a home and have been thinking I should get a license because of all I've learned of unethical behavior and real estate. Browsing this site has given me some hope that I can trust some people-knowing who is the hard part.

Has anyone heard of a landlord renting properties "as is?" The landord has had a C21 for years in TN but he rents properties in a different town under a different biz name.

As is in a rental would mean the renter would be responsible for repairs technically and federally mandated to be the landord responsibility, wouldn't it? Thanks.

Ell

March 01, 2009 06:02 PM #10
Rainer
133,622
Ute Ferdig
Ferdig Real Estate Solutions - Auburn, CA
Attorney Short Sale Negotiator

The key to this issue is to understand that neither a broker nor a seller can escape liability for undisclosed known defects by inserting an "as is" clause.  In other words, the buyer can't waive the right to full disclosure.  The main issue in Katz vs. Department of Real Estate was whether the broker's license was rightfully revoked as a result of the willful failure to disclose known code violations and the court found that the "as is" disclaimer did not relieve the broker of the duty to disclose known problems.  Unless the contract provides that the seller will make certain repairs, the buyer buys the property in its present condition which really means that adding an "as is" clause is just stating the obvious.  It does not change the seller's or broker's disclosure duties.  Some sellers feel better about making it clear that they will not make any repairs and I think they should just state exactly that instead of calling it an "as is" sale.  In my experience, when push comes to shove, sellers (including banks) are willing to make repairs if that's the only way the transaction will close.  Granted, banks may not be as willing to agree, but if the condition is serious enough and they'd have to disclose it to the next buyer or lower the price, some banks will agree to make the necessary repairs.  While banks are exempt from certain (not all) disclosures, they are not exempt from disclosing known material defects.  Just because they don't have to provide a TDS does not mean they don't have to disclose anything.  Getting them to comply is another thing.  That's just a side note.

I think it is better practice to state that the property is sold "as disclosed" instead of using the "as is, where is" clause.  However, in the end, an "as is" clause does not render the whole contract void.  It just means that the "as is" clause does not have the effect of relieving any of the parties and the brokers from their duty to disclose and conduct a due diligence investigation.  As already mentioned, the "as is" clause only states the obvious and does not add anything other than maybe a false sense of security.  I use "as disclosed" in my offers and I specify that the seller does not have to make any repairs just to show the seller that the buyer does not expect repairs and to avoid a counter-offer.  I actually just had a listing agent ask me today why I used the "as disclosed" instead of "as is" in my offer.

January 19, 2010 06:21 PM #11
Anonymous
Anonymous
D Chan

We are days away from actually receiving keys to a home in CA (3/30/10). We just signed the papers but the money has not been transferred yet. One of the conditions in the sale is that the decks (both lower and upper) are sold "as-is" and any repairs we would be responsible for. We had literally just discovered that the upper deck has no permit and since we need to do repairs on it, there will need to be an inspection of the work and the permit issue will arise. The we discovered the lack of a permit only by going back and asking the seller a third time if all remodeling and additions to the house have been permitted and then specifically asking this last time about the upper deck which we could not find in any of the records. This last time, the seller admitted there were no permits and they "couldn't remember" when the deck was actually constructed. Regardless to say, we're in a pickle because we don't want to assume the liability for the lack of a permit but are in the last phases of closing and will not have a place to live within the week because we were so certain the sale would be completed on time. 

Questions for the blog (and yes, we will be speaking with a real estate attorney):

1) Keeping with the thread, does the "as-is" clause trump the lack of disclosure on an item such as permits?

2) What is the liability of the seller's real estate agent in this?

3) What would be the best way to proceed if we still want to conclude the sale on time and move in but not assume the liability?

March 27, 2010 10:46 AM #12
Anonymous
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Rainer
7,194

Nina Erbst

Real Estate Manager "Team Leader"
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