We get a lot of questions about the standard residential purchase contract versus as-is agreement. Let’s go over the differences and how each should be used.
First off, the seller is required to disclose known defects regardless of which contract is used. In the old days agents always used the standard purchase contract which provides for automatic repairs of certain items. There was always a fight about what was covered or not, so the contract was cleaned up and made more precise.
Standard Residential Purchase Contract Versus As-Is Agreement
Since the foreclosure crisis it’s become common practice to use the as-is agreement. The as-is agreement has no automatic repair provisions, so it allows the buyer to cancel for any reason. What invariably ends up happening is a fight about repairs. Buyers get ticky-tacky about little things and demand they are repaired. The seller says no, it was sold as-is and we’re not doing it. The buyer walks and finds another property.
Meanwhile the buyer is out the inspection costs and starts all over. The seller had their home off the market for 10-15 days and lost marketing time. If the buyer wasn’t prepared to accept minor issues they should not have written an as-is contract.
Under the standard contract the seller is responsible for repairs up to 1.5% of purchase price for items like roof, water damage, heating, cooling, plumbing, septic, etc. Cosmetic conditions are not covered. And yet even with as-is contracts buyers ask for cosmetic repairs and get turned down and are left searching for another home.
Buyers are Fearful
Buyers are fearful the problems are bigger than they are, or that costs will mount. Buying a home is an e emotional event, and fear often gets the better of buyers. The time to talk about all this stuff is before they purchase a home. Once buyers know what to expect, the process becomes much easier for them.
Sellers are emotional too. They often feel like the buyer got the better of the deal in negotiations, and now they want stupid repairs on top of it! You can hear their frustration the minute we present them with repair issues. The as-is contract was supposed to cure all this and make contracts simpler and less argumentative.
People are people, and no contract is going to suppress the emotions of fear and greed. So long as this is reality, it might be best to consider using the standard contract which addresses certain issues quite well.
Agents Should Counsel Buyers and Sellers
At the very least agents should be counseling buyers and sellers up-front as to expectations and the process once an offer comes in. If buyers and sellers are properly educated, the emotions are tamed, and the experience of the agent takes over. Each side has confidence they are being treated fairly and according to protocol.
This is one more reason for sale by owners have such a difficult time selling on their own. They don’t have anyone counseling them on how to act and feel. More importantly, there isn’t a neutral party the buyer trusts counseling them on how to feel and act either. Invariably the deal blows up and both sides are more frustrated than ever.
Agents, have upfront consultations with your buyers and sellers. If your buyer is skittish or emotional, consider using the standard contract. It will keep more deals together for you as the contract is specific about what is covered. The as-is contract is like the old Wild West, and in the Wild West anything goes. And usually somebody dies. Don’t let your contracts die needlessly. Rely on your agent’s wisdom and experience to get through these issues. Hopefully both sides are using an experienced agent. Learning on the job is not fun for buyer or seller. Experience matters. Either use an experienced agent with hundreds if not thousands of transactions experience, or someone on a team who has access to all that experience from a team leader. Experience isn’t costly, it’s priceless when you need it.
If you’re looking to buy or sell, always call the Ellis Team at Keller Williams Realty 239-489-4042 or visit our website www.LeeCountyOnline.com for more tips.
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