Why Are Short Sales Sold in As Is Condition
Banks are taking a bath when they authorize a short sale. Sometimes, the amount forgiven by the bank exceeds 50% of the unpaid balance. It's not unusual for a bank to agree to a heavily discounted payoff because the property is only worth what it is worth at the time of sale. If values fell by 50%, then the lender will get whatever is left after costs are paid.
The costs of sale are deducted from the sales price. Let's say a home is worth $100,000. If the commission, title and escrow fees, property taxes, and all of the costs of sale total $10,000, for example, the bank will receive $90,000.
If the bank was to authorize repair costs, the money for those repair costs would be deducted from the $90,000, netting the bank even less. Besides, many banks price their short sales a bit below market value to allow for unexpected repairs. So, the cost to repair / fix a defect might already be figured into the price you are expected to pay.
As a result, banks typically refuse to pay anything apart from locally accepted closing costs. Many purchase contracts state the buyer is purchasing the home in its As Is condition as well. You should read the fine print of your 10- to 20-page purchase offer.
Can the Seller Make Repairs When Selling an As Is Short Sale?
Sometimes, to drive the point home to buyers, I might insert a sentence into my counter offers or addendums spelling out the As Is sale conditions. I will say the buyers understand neither the bank nor the seller will make any repairs, for any reason whatsoever, never, ever in a million years.
This makes people laugh. It also makes some of them mad because they want somebody to be responsible for the condition of the property. But that's not likely. Those are people who do not understand that the last thing a short sale listing agent and her seller want to hear when they are scheduling the property to close is a buyer demand for repairs. Some agents would prefer to negotiate with a new buyer because it's easier than to renegotiate a lower price or repair expenses with an existing buyer.
As to whether the seller can do repairs, it depends. Some contracts stipulate that the seller is to deliver the property to the buyer in the same condition as when the buyer first viewed it. If something happened, say, the roof started leaking, it's not in the same condition anymore. To hold the transaction together, the seller might be agreeable to fixing the roof. But it's not required in many instances.
FHA loan requirements state there can't be any peeling paint in a home built prior to 1978. A buyer will not get a loan if the appraiser notes peeling paint. Will the seller decide to scrape and paint the spots noted by the buyer's appraiser? The seller might if the seller wants the transaction to close. Much depends on what you ask to be repaired and how big of deal it is.
Health and Safety Issues for an As Is Short Sale
Since you expressly used the term health and safety issues, let's talk about that. Some health and safety issues are severe. Some are mild. Some deal with code violations that could be grandfathered.
A health and safety issue is a crack in the sidewalk when one side is raised a half inch and the other side is a bit lower. Such a crack, perhaps caused by tree roots, could cause people to trip and fall flat on their face. But is it a health and safety issue to you? Not having a fire-rated door between the house and garage is a health and safety issue. Venting a bathroom exhaust into the attic is a health and safety issue. Where do you draw the line?
These are not repairs most sellers would even think to tackle for an As Is short sale. Before you consider buying an As Is short sale, you might ask yourself if you are ready to accept a home in its As Is condition. All homes have defects. There is no perfect home.
At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.