Understanding Your Options: Standard and As-Is Real Estate Contracts for Sellers

Property Management Blog

The realm of real estate contracts is a complex one, often requiring strategic thinking, a keen understanding of property conditions, and a deeper comprehension than what meets the eye. As a seller, you might find yourself caught between the desire to sell your property 'as-is' and the buyer's expectation for you to address all potential issues. The reality, however, often lies somewhere in between these two extremes.

In this discussion, we'll delve into the fundamental differences between standard and as-is real estate contracts from a seller's perspective. While the content is primarily applicable to Florida real estate transactions, the basic principles of standard and as-is contracts may prove useful in other states as well.

Please note that I am not an attorney. For specific interpretations and applications of the information provided in this article, it is advisable to consult with a Florida-licensed attorney.

Standard Real Estate Contracts: An Overview

According to real estate attorneys, under a standard Florida real estate contract, sellers are obligated to address, repair, or replace specific items—termed "Defective Inspection Items"—that may surface during the buyer's home inspections. The financial obligations of the seller to repair these items are outlined in the contract and can be limited to maximum amounts spent.

In contrast, as-is contracts do not include any mention of Defective Inspection Items. Under an as-is contract, while buyers can request items to be repaired or replaced, sellers are not obligated to comply. The term "repair or replace" also encompasses sellers agreeing to provide monetary credits at closing to cover specific condition items.

Understanding Defective Inspection Items in Florida Standard Real Estate Contracts

Understanding Defective Inspection Items in Florida Standard Real Estate Contracts

Defective Inspection Items in Florida standard real estate contracts can encompass a wide range of issues, including:

  • Structural, foundation, or water damage
  • Non-working appliances, water heater, HVAC systems, or pool equipment
  • Leaks - roof, window, door, plumbing, swimming pool
  • Lead-based paint
  • Missing roof tiles or shingles
  • Wood Destroying Organism (termites, etc.) damage or infestation
  • Open building permits, unpermitted improvements
  • Toxic or pathogenic mold
  • Radon above a specific level

When sellers accept an offer written on a standard contract, they are obligated to address Defective Inspection Items such as these. However, they are not required to address items that are not specifically identified in the contract as being Defective.

The Distinction Between Working Condition and Cosmetic Imperfection

One of the most misunderstood concepts related to Defective Inspection Items, Sellers Disclosures, Home Inspections, and buyer/seller negotiations is the difference between Working Condition and Cosmetic Imperfection.

Working Condition refers to an item operating in the manner it was designed to operate. On the other hand, a Cosmetic Imperfection is an aesthetic blemish or deficiency that does not affect the Working Condition of an item.

Under a standard contract, appliances, equipment, and systems need to be in Working Condition. Sellers are not responsible for fixing items with Cosmetic Imperfections. Just because an appliance or system is "older" does not make it Defective as long as it still works as designed. This is a common misconception among buyers.

Seller's Disclosures: An Essential Tool

Florida law mandates sellers to disclose any known material defects, facts, or condition issues with the property that may not be readily observable by potential buyers and could affect property value. An accurate, honest, and thorough written Sellers Disclosure of current property condition is a valuable sales tool that boosts buyer confidence when considering submitting an offer on a Florida house or condo.

Before listing a property for sale, if the Sellers Disclosure reveals condition issues that may fall into the Defective Inspection Item category, sellers can decide whether to fix those items before offering the property for sale, adjust the asking price to reflect the cost of repair or replacement, or consider a seller credit at closing.

The completion of a Sellers Disclosure is an opportune time for sellers to contemplate whether they would prefer offers to be submitted on a Standard or As-Is contract.

The Importance of Home Inspections

The Importance of Home Inspections

After a purchase offer has been accepted by the seller, buyers of Florida real estate are entitled to have a thorough Home Inspection performed by a Florida-licensed Home Inspector or Contractor, subject to any limitations in the signed contract. In my opinion, all buyers should have an independent Home Inspection performed on a property they are considering.

Home Inspection reports will include all items that the inspector feels should be addressed by the buyer. Some may be Defective Inspection Items as defined in a Standard contract, some will be Cosmetic issues, some will be age-related, and some will be preventative maintenance suggestions.

When reviewing a buyer's Home Inspection report and considering how to respond to repair requests, sellers should remember the difference between the condition categories we discussed above - working and cosmetic. If an offer was accepted on a Standard contract, be very sure any items the buyer is requesting to be repaired or replaced are actually Defective Inspection Items. Not all condition issues that show up on a Home Inspection report are Defective according to the signed contract.

The As-Is Contract: A Closer Look

Under an As-Is contract, there is also a Due Diligence period. In fact, we call these purchase agreements As-Is with Right to Inspect. Buyers can still ask sellers to repair some items or pay for repairs, though sellers have no obligation to do so.

Remember - As-Is contracts do not include any mention of Defective Inspection Items.

Buyers are able to thoroughly inspect and evaluate the property's condition before deciding to continue with the transaction, and can terminate the contract (within the Due Diligence period) upon finding something not to their liking.

When sellers do not agree to buyer repair requests under an As-Is contract, possible options are:

  • First, get legal advice before making a decision or responding to something you don't like
  • Continue with the purchase, with buyer accepting the property in its current As-Is condition, taking responsibility for all repairs
  • Terminate the contract and get deposits back (if still within the Due Diligence period)
  • Keep negotiating until an agreement can be met (may require a closing date extension and/or contract Amendment)

Key Takeaways for Sellers

Key Takeaways for Sellers

Once you sign and accept an offer, it becomes the contract that controls the transaction all the way to closing. Before signing, be sure you understand the terms, not just the price.

In practice, As-Is contracts allow buyers to terminate a purchase contract for any reason at all within the Due Diligence/Inspection period, and have their deposits returned to them. They don't even have to give a reason as long as the written notice to terminate is sent to the seller before the Due Diligence period expires. The reason is often just buyer's remorse (cold feet). Keep this in mind when you receive an offer on an As-Is contract.

Standard contracts tend to limit buyer repair requests to Defective Inspection Items, keeping buyers in the deal they started. Practicing real estate attorneys tell us that there are more ways to keep a buyer engaged in the transaction when a Standard contract guides it because buyers cannot arbitrarily terminate the contract for no reason the way they can under an As-Is contract.

Being aware of these points is part of the strategy mentioned at the start of this article.

Florida-licensed real estate attorneys are your best source of guidance on this. Real estate agents are prohibited from interpreting legal documents and/or advising buyers and sellers on their legal options.

This discussion has intentionally been a general overview because each real estate transaction is unique and includes different details. Negotiations surrounding inspection items can be very involved since both buyers and sellers often misunderstand their rights and obligations when using either a Standard or As-Is contract.

The Final Word

The decision to use a Standard or As-Is contract is a strategic one, requiring a thorough understanding of the property's condition, the market, and the legal implications. It's a decision that should be made with the guidance of a licensed real estate attorney and a knowledgeable real estate agent.

Remember, the goal is not just to sell your property, but to navigate the process in a way that aligns with your best interests and legal obligations. Whether you choose a Standard or As-Is contract, understanding your options and obligations can help ensure a smoother, more successful transaction.

The world of real estate contracts can be complex, but with the right knowledge and guidance, you can navigate it successfully. Whether you're a seasoned seller or new to the game, understanding the differences between Standard and As-Is contracts is crucial to making informed decisions that align with your goals and legal obligations.

If you’d like to talk more about property management, or you need help with Everest Property Management, please contact us at Everest Realty.

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