As-Is Real Estate Deals Buying Guide

AS-IS Real Estate Deals- RealEstateCake
AS-IS Real Estate Deals | RealEstateCake

Introduction

To quote Bill Clinton, “It all depends upon what your definition of “As-Is Real Estate” is!” Buying an apartment or any real estate property in its existing condition without any changes made in its aesthetics is buying the property “As-Is.” As one scrolls through online listings or with a Realtor, it is very often that one may come across certain houses that say they are considered an “As-Is” property. For some individuals, these two words are enough to make them run away from that particular property; whereas for others, it is a necessary part of the real estate world.

Buyer side issues

It basically means that the buyer is buying the house in its current condition, without expecting the seller to do any repairs or improvements, which is neither lucrative nor does it hold any merit from the buyer’s purview.

Sometimes, when problems are found in a house inspection, the repairs will be negotiated into the purchase. For example, we made an offer on a house with an old septic system that failed the dye test. Part of our offer on the house was the condition that the sellers would replace the septic system. It was a big, expensive project, and we agreed to contribute some money toward it. But the sellers were responsible for arranging everything and getting it approved by the township.

But if we had bought the “As-Is Real Estate Property,” we would have accepted the old system and would have been responsible for taking care of it ourselves.

Seller side issues

What it means to sell a home “As-Is Real Estate” simply means that it is being sold without any intention to pay for repairs or ‘make things right’ for the buyer. The buyer knows that any issues must be paid for by them even if the work needs to be done prior to close of escrow in order to satisfy lender funding requirements. This is a tricky situation because if work gets done, but if the buyer can’t close escrow for some reason, the seller gets the benefit of an improved property. These properties are best left to investors or cash buyers (from a buyer’s standpoint).

The buyer can certainly offer to purchase and rely on the standard contractual clause found in most real estate purchase contracts that they have some number of days to get inspections done and decide if they want to move forward with the deal. Say that everything in the home is outdated but otherwise livable. The buyer figures it will cost them $90,000 to renovate or remodel to make it the way they want it. Add that cost to the purchase price and they ought to be at or near the market value for a remodeled property in the area. That’s fair. But, what if through an inspection it is discovered that the foundation has issues and that, itself, is another $70,000 to repair or replace? This would simply mean that the buyer either backs out of the deal or they offer the seller $30,000 or $40,000 less in order to proceed, which is definitely not a deal with  merit. The seller then has to take a call.

Hence there can’t be preconceived notions like, such deals have the merit side for the sellers and its purely a demerit on the buyer side.

Key points to evaluate before buying As-Is real estate property.

  1. Checking & verifying the title / ownership, legal rights ‘of’ and ‘on’ the land on which, the building has been or is being constructed. This can be done by an Advocate, who specializes in search of titles. Such a professional, if known to you would be in a position to provide you with a detailed report with supporting documents. That is very empowering, due to the knowledge and specific information you acquire. You could also ask for a copy of the search and title report from the developer / seller. However, you can’t blindly rely on the same. The report provided by your advocate will explain the devolution of title of the land and how it passed from one person/s to the other/s. You have the opportunity to discuss the same and understand thoroughly. That provides you with an understanding of whether there exist any fundamental flaws and risks.
  2. Preferably, you must buy a house or apartment that is in a ‘ready to occupy’ status along with a Full Occupation Certificate. Occupation certificate is a certification awarded to the developer, upon completing all compliances as per the sanction awarded. Suffice it to say that the same allows you to legally occupy the premises. Under construction projects are wrought with complexities and facts that you are unaware about, such as the financial health of the seller / developer, current project status, encumbrances and capacity to take the project to its logical end.
  3. Having checked the title and having decided to buy a ready to occupy property, it is presumed that you have already decided upon the city, area, location & the vicinity.
  4. You got to understand and know the pricing trends in the area / location, the deals closed during the past three months, the rates per sq. ft, the ticket size, the percentage of loading, carpet area and so on. Possessing this information equips you to negotiate hard and get good rates and specific terms clearly defined.
  5. While negotiating, always remember it is not just the rate per sq. ft or the ticket size and the carpet area, salable area, possession date etc. Also critical are other items of negotiation such as the area on which the seller is applying the rate per sq. ft, tranches of payment, your possessions / seller obligations / receipts against payments to be made, what if scenarios, penal clauses, delays and treatment, interest rate, when applicable, possession date, specifications clearly defined and so on. There are a host of issues to be negotiated and closed. Those not agreed can be parked for further discussions and resolved subsequently.
  6. The initial preliminary due diligence must be conducted, if possible prior to closing any deal and payment of advance / token amount. You must ask for a set of all documents, records in respect of the land, revenue records – 7.12 extract, Form 6, Form 8A, all Mutation Entries (M.E’s), City Survey Plan, demarcation copy, set of all legal documents related to revenue matters, any judicial documents, orders in favor or against, encumbrances, NOC’s, all NOC’s issued by the Planning Authorities (Sanctioning authorities), Layout & Building plan sanctions, IOD / CC, Building permits, legal documents related to the seller’s / developers rights to develop, power of attorney and / or any such set of documents indicating and confirming that the seller / developer has rights to develop, sell and receive consideration, execute and register documents and give possession. It is important to go through these with your Architect and / or a known lawyer to assess risks if any. Even the slightest indication of a risk is a no go situation.
  7. You need to get the legal drafts verified in order that these are not one sided favoring the seller / developer. You need to identify such terms and negotiate to change the same and make these equitable protecting your interests too. Much of the pain of buyers originates from one sided documents. (The same applies to Lending institutions that provide you home loans.)
  8. Having done all preliminary due diligence, you can be ready to negotiate and close deals covering all points during negotiations. The discussion should be minuted. The minutes to be drafted by your lawyer. Any hesitation from the seller can be seen as a sign of risk.
  9. Once a deal is closed and token / advance paid, preliminary documentation done and executed, you now move on to a detailed due diligence. The most important action you have to initiate is to get a public notice drafted (even for new developments by default) and released for the verification of title, for which the seller / developer must issue a NOC. Any hesitation from the developer should be taken as a risk and a no go situation. This helps announcing to the public and the verification if at all the same has been sold to someone else and / or encumbered by the seller / developer. In such an event, your advocate publishing the notice, should expect objections during the notice period from those affected. The seller / developer is under an obligation to clear the objections, get NOC’s and hand over the NOC’s to you. That makes the title clear. The sellers are obligated to deliver to you premises that are clear and marketable and without any encumbrances.
  10. In the event, you are buying in an under construction project, you need to regularly check the site progress to its established timelines and check for any deviations in compliances, conformity, adherence & assurance. In the event you find these, you have to take these up with the sellers and get them to resolve these.
  11. At the stage of final documentation, you need to again follow up on all the clauses and terms as these were initially decided. You have to ensure that these terms are incorporated.
  12. Normally and by default, you need to get a home inspection done to ascertain what you are getting is the same as what was initially decided.
  13. Post possession claims if any need to be followed up with the sellers, without which your claims will not get settled on their own.
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These are some of the things that you need to do. However, as a shortcut you can deploy us to be your concierge to do all acts on your behalf as you would yourself do and to represent you and your interests before any seller / developer, for fees and value.

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