Contracts are one of the many confusing aspects of selling or buying a home. While many parties in a home transaction may feel uneasy about signing or entering into a contract, with proper guidance, this topic can be easily navigated. Veteran realtor Joe Lewkowicz breaks down the “AS-IS” and “Standard” contracts in his latest segment.
I analyzed 25 of my sales from 2016, to check what type of contract was more prevalent, and what was the outcome? Was it an “AS-IS” with the right to inspect, or was it a “Standard Contract” with repair limits attached? This is just a sampling of the completed sales I had for last year, but it did give an idea of the trends.
There are two types of pre-printed contract forms available to most Realtors, also known as the FAR-BAR contract. One is an “AS-IS” contract (with the right to inspect), which allows a certain amount of days after a contract has been accepted, to do any due diligence for a purchase, including home inspections, checking of deed restrictions, and confirming anything a buyer may wish to know.
The pre-printed time frame, unless changed in the blank contract, is 15 days. The buyer may cancel for any reason at all, in the allowed time frame. They do not even need to do a home inspection. The second pre-printed contract form is a “Standard Contract”, with limits for repair amounts and clearing of permits. The standard amount in the pre-printed form is 1.5% for each of 1) general repairs, 2) wood destroying organisms, and 3) clearing of permits. These values can be negotiated in any offer. The buyer does not have the right to cancel the contract if the required repairs are completed, as compared to the as-is contract.
Of the two types of contracts, the “AS-IS’ with the right to inspect was by far the most accepted form (of my sales last year), with 23 of the 25 homes using this clause.
Only two used the “Standard Contract”, with repair limit clauses. Of these two, both changed the limits from the actual contract. Both used the full repair limit amounts. In one case it was $750.00, in the other it was $5,000. Even though the majority were “AS-IS’ with the right to inspect, repairs or credits were often asked for. Eleven of the 23 homes sold “AS-IS,” either asked for repairs to be done, or received a credit, usually for loan closing costs. Five of these 11 gave a credit to loan closings costs instead of doing the repair work.
A credit for repairs cannot usually be given when a mortgage company is involved. The mortgage company will require the work to be done prior to closing. The maximum repair done on any of these “AS-IS” contracts was $2,000 for a roof repair, but the others were all less than $1,000 in repairs. Twelve of the homes sold with the “AS-IS” clause; they did not offer a credit and did no repairs.
Of the 25 homes analyzed, four didn’t sell due to the home inspections, all with the “AS-IS” clause, but consequently resold to someone else. There were an additional three homes that did not sell for this same reason and have not been resold. Two of these are back on the market. Of the four that resold and closed, three of them received more money (between 1%-1.5% more) without doing repairs, and one remained the same. The time frames for closing after the sale fell through, averaged an additional one to three months longer than originally planned for.
As can be seen, the majority of offers presented seem to be “AS-IS” with the right to inspect. Very few do not close due to the inspections, but some repairs or credits may need to be considered to allow the sale to continue (in lieu of the additional carrying costs by putting home back on market). While most of the sales that don’t close resell again, a decision will need to be made as to the timing of a move and cost of doing so.
To discuss further the complexities of real estate contracts, especially in the
North Tampa market, contact Joe Lewkowicz today! Remember, “no-one works harder to sell your home!”