April 18, 2024
Real Estate

How Does Selling a House As-Is Work?

When selling a house as-is, you need to be aware of what’s involved with this type of sale and how much you could potentially lose.

Preparing a home for sale can be stressful – especially if you’ve been putting off necessary repairs. Instead of taking on that burden, selling a house as-is can be an attractive option for sellers looking to alleviate the responsibilities and costs associated with selling a house.

  • What does selling a house as-is mean?
  • How much do you lose selling a house as-is?
  • Selling a house as-is.
  • Who is more likely to buy a house as-is?
  • Cons to selling a house as-is.

What Does Selling a House As-Is Mean?

Selling a house “as-is” essentially means selling a home in its current condition. “When buyers purchase a home as-is, they are doing so knowing that they cannot request the seller make any repairs based on what is found during the inspection process,” says Beatrice de Jong, Opendoor broker associate and consumer trends expert.

Selling a house as-is can also mean a lot of things to different people. Does it mean it needs some cosmetic repairs or does the entire roof need to be replaced? For some, it may seem like a bargain, but it could mean hidden issues that could cost thousands of dollars to repair. While as-is sellers still need to meet minimum state and federal disclosure standards, it could mean a lower selling price and fewer interested buyers.

“Keep in mind, when selling a home, first impressions matter. The condition of your home will (impact) how much money you will be able to walk away with,” de Jong adds.

How Much Do You Lose Selling a House As-Is?

The amount a seller could potentially lose on an as-is sale has a lot to do with the location, the condition of the house and the current state of the market. “I’m seeing properties that are in need of tons of work selling at premiums just because of the environment we’re in,” explains Jeb Smith, broker associate and GRI with Coldwell Banker Realty in Huntington Beach, California. “If we’re talking about now versus other markets, it’s a different answer.”

Smith explains that when the market was balanced or in favor of buyers, properties in need of some work could sell 15% to 20% below market value. Not only can selling as-is take a chunk out of the sales price, but it could also mean that the house sits on the market for a longer period of time. Carrying costs, like mortgage payments, homeowners association fees, utilities and more, could cut into a seller’s profits.

Selling to investors could also impact the final offer. “If an investor wants to fix it up and flip it, they need to get that property at a price that allows them to do the upgrades and still make a certain profit on that property,” Smith says. Investors have their own risk tolerance and profit margins, which may impact how much they offer.

Selling a House As-Is

Homeowners planning to sell their house as-is still have the upper hand in this seller’s market. “I wouldn’t say every single transaction, but a good majority of properties are selling as-is because sellers have control at the moment,” Smith claims. “They have the leverage, therefore they’re dictating the process in which properties sell.”

Surging demand and lack of options have put sellers in a position of power. In 2021, existing-home sales totaled 6.12 million – an increase of 8.5% from the year before and the highest annual level since 2006, according to the National Association of Realtors. Homes are also selling at record speeds – 79% of homes sold in December 2021 were on the market for less than a month.

“You don’t have to do a lot to sell your property as-is in this market. Now when the market turns, which eventually it will at some point, it’ll either be more balanced or geared toward buyers. That’s when sellers have to focus on what’s going to set them apart from the house down the street that either doesn’t need any work or the sellers are willing to do repairs,” Smith states.

Who Is More Likely to Buy a House As-Is?

Any buyer is capable of purchasing a home as-is and for a variety of reasons.

“Many first-time buyers looking to break into the market on a budget often will purchase homes as-is,” says de Jong. “Being able to buy a home in need of cosmetic fixes enables buyers to get into the real estate market and remodel a house in their style.”

There are also investors, house flippers and companies that purchase homes as-is. For example, de Jong notes that Opendoor, a large real estate company known for making cash offers on homes, will make an assessment on a home to verify its condition. If repairs are needed, the company may ask for a credit and deduct the costs from the net proceeds.

The state of the housing market also makes selling a house as-is much easier than it would be in a more balanced market. “Buyers looking to get in the door or purchase a home to renovate are more likely to scoop up homes selling as-is,” de Jong adds.

Cons to Selling a House As-Is

Some buyers could see an “as-is” home sale as a potential red flag. Buyers may feel more comfortable offering a higher price on a different house knowing that they can ask for repairs during the inspection. Selling a house as-is could also result in a lower selling price. Sellers could be leaving money on the table by allowing buyers to make low-ball offers over minimal cosmetic defects.

Another big disadvantage is that some mortgage loans may require repairs before the lender will approve the loan. “Buyers with Federal Housing Administration mortgage loans typically have repairs required from their bank, and not having the option to ask the seller to chip in on the costs can be a deal-breaker for those buyers,” says de Jong.

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