$0 Repair Limits vs. As-Is

2829 S OspIn Section 12 of the FAR/BAR contract, a seller warrants the operational condition and structural integrity of their property, and has the responsibility to maintain or deal with such matters going forward from the contract’s effective date through closing.  Subject to the Section 9(a) repair limits, the seller is responsible for structural or equipment repairs, and to close-out (or obtain and close out) building permits.  However, there are Realtors who are of the impression that putting $0 in the Section 9(a) repair limits makes the deal “as is.”

Zeroing out the repair limits does not remove a seller’s warranties and representations about the Section 12 inspection items (general property, wood destroying organisms, or building permits) or, perhaps more importantly, absolve a seller of responsibility to maintain or deal with such matters from the contract’s effective date forward.  All the $0 limit does is ensure there will be a discussion about what is going to be repaired or closed out.

Contrast this with a true as-is contract, where the seller’s only responsibility is to make sure the condition of the property is the same at closing as on the effective date of the contract – i.e., they can’t let that hole in the roof get any worse than it already is.  The seller makes no warranties whatsoever about the operational fitness of the property or its history.  What the buyer sees is what the buyer gets.

There are two addenda on point:

1) The FAR/BAR Right to Inspect and Right to Cancel addendum serves the same purpose as some of the home-grown inspection addenda you see proffered by other closing firms – it gives the buyer a free look period, but if they elect not to cancel, then the repair limits ($0 or otherwise) remain, as do the seller’s warranties and representations.

2) The FAR/BAR As-Is addendum, on the other hand, removes the Section 9 repair limits and the Section 12 warranties and representations, creating an actual as-is, “what you see is what you get” contract.  From a drafting perspective,  if as-is is your intent, I’d suggest that the FAR/BAR AS-IS contract (the same one you usually see in short sales) is the better vehicle for your offer, since it incorporates the concept of the As-Is addendum in a cleaned up, single purpose form.

The upshot is this: you are doing your seller client a disservice if you use the term “as-is” in connection with a FAR/BAR offer with $0 repair limits and/or a Right to Inspect/Right to Cancel (or homegrown) addendum attached.  Contract forms are a Realtor’s stock and trade – be absolutely clear in your understanding of what each form (and addendum, regardless of the source) says and does, and what obligations your client has as a result of the complete contract presented.

# # #

This information in this site is not intended to establish an attorney-client relationship, and if anything herein could be construed as legal guidance or advice, I strongly encourage you to consult with your own attorney before relying upon any such information.

All rights reserved. This copyrighted material may not be re-published without permission. Links are encouraged.

dunlapmoran.com

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s