If you are selling an old washing machine, a car you pulled out of the back forty, or the old brick cellphone you had when you still had hair, you could use an “As-is, Where-is” term to ensure the buyer knows you aren’t providing any warranties on the item. This works well in the realm of personal property, but what about the realm of real property? Well, let’s consider the appropriate time and use of an “As-is, Where-is” term for real property.
When to use
There are times it is entirely appropriate to use an “As-is, Where-is” term for real estate. The most common of these situations would be where the person who has the legal authority to sell the property has never lived there and does not know the property specifically. For example, a bank-owned property would be a situation where the bank has no knowledge of the property because they never lived there and simply could not warrant the condition of the property to a buyer. Similarly, with a court-ordered sale, the judge isn’t going to inspect the property, or in a probate situation, the executor may have never even visited the property either. In such situations, it is not only possible but right to use such a term to signal to the buyer that they should seek additional due diligence conditions to satisfy themselves about the property, or alternately assume the additional risk with proceeding.
When not to use
Since there exist appropriate times to use “As-is, Where-is”, there must also be times when it would be inappropriate. This term can never be used to shield the seller from a known material latent defect. For example, if the seller knows that the basement floods every spring and feels that making a statement about the property being sold as-is to the buyer will protect them from liability the next time the basement floods, they need to think again. The disclosure of known material latent defects is a requirement of the law, and you cannot contract around a legal requirement.
How to use
In the standard AREA real estate purchase contract, the property is typically sold with the land and buildings, attached goods, and select unattached goods such as appliances. As part of the agreement, the seller warrants that on the completion day the attached and included unattached goods will be in normal working order. So, when using an “As-is, Where-is” term in the standard contract, it should be worded something like “The buyer understands that the property including land, buildings, attached and unattached goods included are sold in “As-is, Where-is” condition with no warranties expressed or implied by the seller.”. This type of a term makes clear to the buyer that even the goods, such as appliances are also sold under the same condition as the land and buildings, and they should do their due diligence in regards to these items as well.
One additional use of this type of term is in a specific circumstance where both buyer and seller are aware of an issue, have dealt with it, and are willing to proceed but the seller wants to ensure the understanding is codified in writing. For example, during the inspection, the buyer learns the dishwasher needs replacing but also realizes they forgot to include the storage shed in the contract. The buyer may in this scenario notify the seller that the dishwasher has an issue that requires repair, but they will take care of it themselves if the seller includes the storage shed in the contract. The seller could then instruct their REALTOR® to draft an amendment adding the storage shed to the chattels section, as well as a term that states “the buyer understands that the dishwasher is sold in “As-is, Where-is” condition with no warranties expressed or implied”. This allows both parties to get what they want and clarifies the agreement between them so there is no future confusion, as well as ensuring that the rest of the agreement is left unchanged.
Unfortunately, the “As-is, Where-is” term is not simply a matter between buyer and seller, since you must always remember the golden rule, "He who has the gold makes the rules”. That’s right, if the property anticipates some level of financing, the lender may get nervous with the term, and require an additional level of their own due diligence, possibly in the form of an additional inspection or an appraisal. Similarly, if the insurance company that plans to insure the property learns of this term in the contract, they may also ask for additional information related to the property. One final consideration that could be serious for REALTORS® representing buyers of such properties, is that once the buyer agrees to such a term, many if not all of the protections offered to the buyer through the standard form contract relating to the property and chattels are effectively waived and they would have little recourse if a major issue arose.
As with any legal term, the “As-is, Where-is” term is a tool in the toolbox for buyers and sellers to use in the purchase and sale of real property for specific scenarios. Like any tool, its use, benefits, and risks should be fully explained before it is attempted in use to ensure the parties who are agreeing to it understand the implications of their decision.
Provincial Practice Advisor
Bryan has many years of experience in the real estate industry including over 10 years as a former broker in the Edmonton Region.
Email: email@example.comPhone: 403-209-3619