If you’re buying or selling real estate in Florida, you have probably already seen something called the FAR/BAR AS IS contract. Don’t let the acronyms scare you off, this is a widely used contract. In fact, it’s the norm when buying any bank-owned properties.
This means that you – the savvy and experienced real estate investor – need to learn how to master AS IS contracts for all your REO investments. This isn’t just a smart move or a way to maximize your return on investment, it’s absolutely vital in Florida’s ultra-competitive market.
Find the Lionshare Lending guide to AS IS purchase contracts below. Speak to one of our loan advisors today at 423.388.2660 to find out about your lending options.
What is an AS IS Contract?
The most commonly used type of real estate transaction contract in Florida is the Florida Association of Realtors®/Florida Bar Association contract (FAR/BAR). FAR/BAR contracts can be modified from their “traditional” form to something called FAR/BAR AS IS purchase contracts.
At their most basic, AS IS contracts clearly outline that buyers must take ownership of a property in its existing condition.
When using an AS IS contract, the buyer has a preset period of time to inspect the property. This is typically fifteen days, though it can differ depending on the specifics of a given contract. The buyer can ask that the seller make the repairs, lower the price of the property to reflect the cost of repairs, or give a closing credit to cover the repairs. The seller, however, is not legally required to do any of these.
AS IS contracts also release the seller from being held legally responsible for any defects not found during the inspection period – not that this means that sellers are allowed to skip over disclosures. Residential sellers, including investment property sellers, have the duty to properly disclose.
It’s worth taking a moment here to note that Florida courts have not traditionally required sellers of commercial property to disclose defects. This is due to something called caveat emptor, more commonly known as “buyer beware.” Of course, this does not mean sellers can’t actively hide defects either. Commercial sellers can be held liable for any harm that results from misrepresentation.
Different Types of AS IS Purchase Contracts
There are three types of AS IS contracts: the standard FAR/FAR AS IS contract, the AS IS addendum to contracts, and the right to inspect and cancel addendum.
The standard FAR/BAR AS IS contract is what we outlined above.
The AS IS addendum is officially known as addendum K. This is a rider placed on a standard contract. Legally speaking, there is no difference between a FAR/BAR AS IS contract and a traditional contract with addendum K. Practically speaking, adding this addendum to the contract makes the closing process a bit more complicated than simply using an AS IS contract.
The right to inspect and cancel addendum is officially known as addendum L. This is another rider attached to a standard real estate transaction contract. This particular addendum heavily favors the buyer in any particular deal. It gives buyers the right to cancel the contract and it holds the seller legally responsible for repairing defects discovered during disclosure or inspection.
When Will You See AS IS Purchase Contracts?
The vast majority of property sales in Florida use the FAR/BAR AS IS contract. That being said, there are specific instances where you’re more likely to see an AS IS contract.
Properties sold by a bank, for instance, are always sold using AS IS contracts. This means that the vast majority of foreclosure or REO properties will be sold using an AS IS contract. Distressed properties are sold using AS IS contracts. Finally, if you’re purchasing a property from a trust, it’s going to be sold with an AS IS contract.
Buyers will often use FAR/BAR AS IS contracts, or standard contracts with addendum K added, to make their offer more attractive to sellers. In a competitive market, anything a buyer can do to stand out from the rest of the crowd is beneficial. Showing a seller they’re willing to overlook potential future issues certainly accomplishes this goal.
Now that you’ve read the Lionshare Lending guide to AS IS contracts, it’s time to take the next step towards securing the perfect investment or REO property. Call us today at 1 (423) 388-2660 to get your loan started.