Contracts

The Sales Contact Explained

Traditional FloridaBar-1 Contract

The primary differences between a traditional FloridaBar-1contract and an As-Is contract revolve around three of these paragraphs. Paragraph 12C of the contract deals with wood destroying organisms. Wood destroying organisms include wood rot, termites, and other pests which can damage a home. To summarize the paragraph, it says that if, after the contract has been signed by both parties, the buyer has a licensed inspector or Florida certified pest control operator review the property and find wood destroying organisms then the seller will be responsible for paying to get rid of the pests and correcting any resulting damage caused by the infestation. It also provides for a maximum amount the seller will have to pay (typically 1.5% of the purchase price).

Since the seller will probably have to correct the problem regardless of who the buyer is, and since the seller is obligated to disclose the fact that the wood destroying organisms exist, it is likely that they will go ahead and have the pests dealt with anyway. However, this solution allows for an out for both buyer and seller in various situations.

Similar to paragraph D is Paragraph 12B of the FAR/BAR contract. Paragraph 12B says that there may be other damage to the home which the seller will have to repair. For example, if a buyer’s home inspection shows material damage to the roof then the buyer may demand that the seller fix those problems up to a fixed price (typically 1.5% of the purchase price again). Again, it is usually in the seller’s best interest to go ahead with the repairs.

The 3^rd item is paragraph 12D. Paragraph 12D deals with costs associated with closing out open or expired permits and obtaining required building permits. Like the preceding paragraphs, it is typically 1.5% of the purchase price.

For details of paragraph 12, please download the Sales Contract.

As-Is Contract

An As-Is contract is effectively an alternative to the rules listed in paragraphs 12 of the traditional contract. In fact, if you look at either of these paragraphs in an As-Is contract, they will show “DELETED”. Instead of the strategy outlined above, an As-Is contract includes a broader inspection period. The inspection period can be set for any period of time and is typically up to 10 days for a residential contract. During that time the buyer should have any inspections performed that they feel are necessary. That includes a traditional home inspection, a pest inspection for wood destroying organisms and anything else that they feel is important. Here’s the kicker: at any time during the inspection period, the buyer “in the buyer’s sole discretion” can determine that they are not satisfied with the results of the inspections and can cancel the contract.

If defects in the home are found, the buyer can cancel or the buyer and seller may renegotiate the contract in order to find an appropriate solution. The seller is not obligated to fix anything but he or she may be willing to make certain concessions in order to see the contract to closing. In addition, once the seller is aware of any material defects, they will have to be disclosed to future potential buyers. The buyer has a very possible out and loses only the cost of the inspections.

For details of the As-Is Rider, please download the As-Is Contract.

Common misconceptions

First, it is important to understand that buying a house is not like buying something at a garage sale. An As-Is sale does not mean that the seller can hide known damage from a buyer. A seller is required by Florida law to disclose all known defects that could materially affect the value of the house. A seller who withholds valuable information can be held liable for his actions regardless of whether the transaction is conducted “As-Is”.

There is no such thing as “selling As-Is”. Also, an advertisement can say that a home is being sold As-Is. However, a buyer can submit any offer. Further, it is the duty and responsibility of a listing agent to forward any offer that is presented. So, a buyer can submit an As-Is offer on a home that has not been listed As-Is. Likewise, a traditional offer can be submitted for a home that has been advertised As-Is. By way of example, a seller who is trying to sell her home for $400,000 As-Is may get two offers. One for $350,000 on an As-Is contract and another for $400,000 on a traditional contract. The seller could determine that selling As-Is is not worth $50,000 and accept the larger dollar amount. The seller could also make a counter offer to the higher contract and include an As-Is rider if she feels very strongly about it. At the end of the day, marketing a house as As-Is is a request from the seller to the buyer as to the type of offer she would like to see.

Another common misconception is that an As-Is sale means something is wrong with a house. It is often the case that buyers assume that sellers are trying to hide defects by selling As-Is. As such, they may be wary of buying a house marketed As-Is. In reality there are occasions that fine houses are marketed As-Is and there are situations in which houses with greater needs are marketed traditionally. In common practice it seems that the As-Is moniker is simply used in some marketing and not in others.

While the traditional contract does include language to provide a warranty from the seller to the buyer that an As-Is contract does not, the strength of it is rudimentary. It says, in effect, that the structure of the house (roof, walls, foundation) does not have visible leaks and/or structural damage and that the mechanics of the house (plumbing, electrical, etc.) are in working order. On the whole, the variance between these types of damage and those that must be reported when disclosing material defects is not that great. Furthermore, it is likely that a home inspection would find the type of defect(s) which would be covered by this seller’s warranty.

Another common point of confusion is between a seller’s warranty and a home warranty. A home warranty is an insurance policy that may be included with a sales transaction. The buyer, seller, or both can purchase the policy. These small insurance policies are offered by companies such as American Home Shield. The policies typically cost less than $400 and insure the plumbing, electrical, appliances, pool, etc., against breakdowns. A seller can get coverage for the buyer from the time the house is for sale, through closing, and for another year thereafter. The policies offer a safety net for the buyer and can help smooth the transaction. They are not all inclusive, but they can also reduce the likelihood that there will be large problems after the closing for the buyer and seller to end up arguing about.

Summary

As a buyer, there is a certain amount of comfort in submitting an As-Is contract. Because of the inspection period, there is an absolute out during the term of the inspection period. In fact, by putting up a deposit and entering into an As-Is agreement with a seller, the buyer has effectively placed an option on the purchase of the house for the term of the inspection period and for the cost of any interest lost on the deposit. As a buyer, this gives an opportunity to become intimately familiar with the property while being sure that the terms of the contract will not be adjusted and that the seller will not sell to someone else. Therefore, despite the stigma that comes to mind when a buyer hears “As-Is”, it is typically a good way to go.

From a seller’s perspective, As-Is initially sounds great. It brings to mind the idea that I can ignore disclosing all of those little issues associated with the house and find a buyer who can deal with them. That is simply not the case. Caveat emptor (‘Let the buyer beware’) does not apply. In reality, marketing a property “As-Is” may have a negative effect on buyer’s perceptions. In addition, the As-Is contract puts the buyer in a position to act on any buyer’s remorse that they may feel after the contract is inked. The inspection period on the contract becomes a waiting game while we hope that the buyer is satisfied. In most Realtor Associations, the property cannot be marketed as ‘Active’ in the Multiple Listing Service, but needs to be flagged as either ‘Pending’ or ‘Contingent’ or some other designation that will remove it from many searches.

At the end of the day, there are always going to be defects of some type in a house. As-Is contracts do not solve the problems. As a seller, the contract doesn’t have the magic bullet that will pass them along to the buyer. From a buyer’s perspective, neither a traditional contract nor an As-Is contract will guarantee that I have a perfect house or that the seller will fix everything.

Differences between the As Is Residential Contract for Sale and Purchase

(FloridaRealtors/FloridaBar-ASIS-1) and the Residential Contract For Sale and Purchase (FloridaRealtors/FloridaBar-1)

The As Is Residential Contract for Sale and Purchase (FloridaRealtors/FloridaBar-ASIS-1) contains the following differences from the Residential Contract For Sale and Purchase (FloridaRealtors/Florida Bar-1):

• Title is different
• Form number is different
• Paragraph 6 – If Buyer occupies Property prior to Closing, Buyer accepts the condition of Property at time of occupancy. The Residential Contract for Sale and Purchase provides the condition of the Property is accepted as is at the time of occupancy unless Paragraph 12 items had already been identified.
• Paragraph 9(A) – On the As Is contract, Seller’s closing costs do not include sums for General Repair Items, WDO treatment and repairs, costs associated with closing out open or expired building permits and obtaining needed permits. Seller is responsible for the AS IS Maintenance Requirement under the AS IS Contract, while this is named the Maintenance Requirement under the Residential Contract for Sale and Purchase.
• Paragraph 10(j) – References more than the Johnson v. Davis language. Paragraph 10 (j) of the As Is also covers that Seller has received no notice of an uncorrected code violation and that Seller gives no warranty as to the conditional of the Property.
• Paragraph 11 – As Is Contract identifies Seller’s responsibility to maintain the Property as the As Is Maintenance Requirement while in the Residential Contract for Sale and Purchase it is referred to as the Maintenance Requirement.
• Paragraph 12(a), (b), (c) and (d) – Inspection of the Property is a free look while paragraph 12 in the Residential Contract for Sale and Purchase obligates the Seller to make repairs of certain items if contract provisions are followed.
• Paragraph 18 Standard A (i) – Clause that that formerly contained a strike out in Paragraph VII of the AS Is contract was purposefully deleted. That language still appears in Standard A or the Residential Contract, without a strike out.
• Paragraph 18 (X) – waiver of claims. This doesn’t have a counterpart in the Residential Contract for Sale and Purchase.
• Paragraph 19 – Riders K (As Is) and L (As Is With Right to Cancel) do not appear in the list of addenda but instead are marked reserved because they aren’t necessary for this As Is Contract

Conclusion

When selling a house, it is not typically in your best interest to market the house As-Is. The protection that you would think to gain from those two little words just isn’t there. It may be a turn-off to concerned buyers, who will never make an offer. Further, the contract hands the buyer much more power than they would otherwise have. Instead, offer a home warranty, disclose material facts, and market it in the best light possible.

As a buyer, an As-Is contract is nothing to be afraid of. Regardless of the type of contract, home inspections should be performed. A qualified professional who inspects homes will likely be the best way to find the issues of which you need to be aware. You should always request and review the seller’s disclosure statement which lists their knowledge of defects. In addition, ask for a home warranty in the contract. Even if you never need it, it’s a nice feature to have.

Download Sales Contract PDF
Download As Is Contract PDF

Additional Addendums Required.

Most Communities have specific Addendums required in Contracts.
For a link to see specific community Addendums, please click here.