7 Clauses in the Standard Contract
I recently had this conversation with my friend MaryAnn the realtor:
Me: What causes you the most consternation with your clients?
MaryAnn: “As Is!”
Me: How come? What’s wrong with “As Is?”
MaryAnn: What does “As Is” mean?!? If you ask a group of 50 sellers, buyers, and realtors what “As Is” means, you’ll get 50 different answers.
“As Is” is never crystal clear. A seller might be surprised to learn that an ‘as is” contract requires her to make thousands of dollars of sidewalk repairs in order to get a CO. Or a buyer may not understand his “As Is” deal doesn’t allow him to request environmental remediation.
Below is your “As Is” Guide – seven relevant clauses in the standard real estate contract which should be discussed in any “As Is” contract:
1. Paragraph 9, Certificate of Occupancy. This is where an “as is” sale can become fuzzy. Even if the house is “As Is”, the standard CO clause requires seller to obtain a CO from the municipality. Each municipality has its own criteria for CO inspections, but it’s not unusual for a homeowner to have to spend money on repairs to get the CO. This needs to be discussed with the homeowner prior to signing the contract, and if necessary revised to put the burden of obtaining CO on the buyer.
2. Paragraph 11, Quality of Title. What if the buyer’s survey shows that a neighbor’s fence is on the subject property? Your “As Is” sale doesn’t necessarily cover encroachments that affect title. Read this section carefully, and talk to your seller about what they’re willing to do to clear title if an issue comes up.
3. Paragraph 13, Lead Based Paint. If the home was built prior to 1978, the buyer is entitled to a lead paint inspection. This is another potential gray area of “As Is” sales. The standard language allows the buyer to conduct a lead paint inspection, and if lead paint is found, ask the Seller to remediate. If the Seller refuses, the Buyer can terminate the contract. Be sure to discuss this with your client and make sure that they understand their rights.
4. Paragraph 16-Home Inspection Clause, including Radon and Termite. This is the paragraph that most people think of when they think “As Is.” It states that the buyer is entitled to inspections, and then is allowed to ask the seller to make repairs. The seller always has the right to refuse repairs, even in non “As Is” sales. If the seller refuses, the buyer then has the right to cancel the contract. One modification to this paragraph on an “As Is” contract is adding a “floor” on the dollar value of repairs before a buyer has the right to cancel; or a limiting the buyer’s right to cancel only for significant defects in the roof, structure, or major systems.
5. Paragraph 23-Maintenance and Condition of Property. The default language of this clause is that all systems “now work and shall be in proper working order at Closing.” If this isn’t accurate, the clause needs to be modified. It also means that if the air conditioning was working when the contract was signed, but isn’t working at closing, it is on the seller to replace or repair it, even if the contract is “As Is.”
6. Paragraph 24-Risk of Loss. The standard contract language has the seller on the hook for any casualty to the property prior to closing. Most homeowners have insurance to cover major damage, but high deductibles can mean that even an “As Is” contract requires a seller to pay for repairs in certain circumstances. Be sure your client understands this clause.
7. Bonus Issue-Well Certifications. The most current real estate contract does not include a section on well testing. However, any property that has a well must be tested and certified prior to closing. The cost and responsibility for the well certification, as well as any require remediation, should be discussed with your client prior to signing the contract.
A thorough discussion of these clauses, before the contract is signed, will go a long way towards a mutual understanding of all parties what “As Is” really means.
About the Author: Melanie M. Levan, Esq. is a partner in the firm’s Real Estate, Estate Planning, and Business Law practices. She is the co-founder of MooreKids, a 501(c)(3) nonprofit organization dedicated to supporting children in Moorestown.
The article above: (1) does not create or constitute an attorney-client relationship, (2) is not intended as a solicitation, (3) is not intended to convey or constitute legal advice, and (4) is not a substitute for personalized legal advice from a qualified attorney. You should not act upon any such information without first seeking qualified professional counsel about your specific matter.