Buying a home can be intimidating, especially given all the mortgage choices and conditions. Which leads us to the topic of as-is properties. Are they a good deal? What should you look for? And how can you negotiate with a seller? Here are four questions that may have you reconsidering a potential purchase.
What Should the Seller Cover?
When it comes to purchasing a home that needs work, you are often at the seller’s mercy as to what they will agree to cover. Mortgage lenders usually specify health and safety remedies as non-negotiables.
But an as-is sale can indicate the seller’s reluctance to invest any cash into the house. In estate or probate sales or situations nearing foreclosure, the current homeowner may not have the money to perform repairs.
Of course, some sellers are willing to negotiate once a home inspection is completed. If a big problem comes up during the inspection, the seller will have to disclose that to potential buyers later anyway. Much of the time, it pays for them to negotiate with you instead.
What Is the Repair Timeline Like?
With a seller who is willing to negotiate, you may have repairs completed before closing on the home. In other cases, the seller might prefer to give you a post-closing credit toward repairs, potentially lowering your closing or mortgage costs.
Decide which is ideal for you, and what comes out to be a better deal. Of course, in some mortgage-lending scenarios, you may not have a choice. Government-backed loans, for example, require that the house pass unique appraisal specifications prior to the deal closing. For many buyers, that means seeking a property with a flexible seller or a home in move-in ready condition.
Another option—which doesn’t involve the seller—is to choose a home loan which provides for repairs post-closing. For example, the FHA’s 203(k) mortgage option allows you to finance up to $35,000 into your mortgage to upgrade a property. After the loan finalizes, you finance the repairs from an account overseen by your mortgage lender.
Can You Make Post-Closing Repairs?
When dealing with a property that needs repairs, you have a few options. The first would be to skip out entirely and choose another home. But if you love the house despite its faults, The Balance highlights three ways you can manage post-closing repairs on the loan.
You can negotiate repair costs into the mortgage by requesting a lump sum from the seller to cover everything. Another scenario would involve the seller pre-paying for a contractor who will perform the work. Or, you can set aside some of the seller’s proceeds from the sale (in a trust) and draw from there to finance the renovations.
When Is an As-Is Sale a Good Deal?
If a seller is offering an affordable price on a house but specifies the sale is “as-is,” is that a good deal? It depends on what condition the house is in, and what could potentially go wrong in the future. A home might have structural problems, a leaky roof, mold or mildew issues, or even a pest infestation (extermination services average $200 – $700) that the seller doesn’t want to bother with.
In some cases, as-is can be a good deal—but you need to do your homework before making an offer. Ask to see pest and other home inspection reports to get an accurate idea of what improvements the property may need.
With a low-enough asking price, an as-is property might be an excellent investment to add to your portfolio. If you have the funds to renovate—or have enough cash for a mortgage-free purchase—you might come out ahead.
In other situations, a house may turn out to be a costly proposition. Especially in foreclosures or bank sales, repossessed homes can have shady histories, says Bankrate. Once you start renovating, you may find shocking—and disappointing—structural problems.
Every house—and seller—is different, making it challenging to give blanket recommendations on as-is homes. What’s most vital is knowing the property and as much of its history as possible—then you can make an informed decision on whether to buy.
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