Is buying a home as-is a good idea?

Buying a home as-is can look quite attractive, since “as-is” homes are often priced lower than competitors. But sometimes it's too good to be true, and the beautiful home in the photos can turn out to be a money pit, which is why some people prefer not to buy a fixer-upper.

When you’re considering buying a home as-is, risk assessment is the name of the game. It’s important to know which rights you have and which rights you forfeit when you buy a home as-is. There are plenty of reasons an owner might sell a diamond in the rough as-is — but you have to know how to recognize potential issues and what you’re in for before you buy.

What does it mean to buy “as-is?”

Buying “as-is” simply means that the seller makes no guarantees as to the condition of the home. This typically happens when a seller doesn’t have the time, funds, or desire to make repairs before closing. However, there are plenty of reasons someone might want to sell an as-is home on the market, beyond not wanting to put money and time into repairs.

While they can list their home regardless of condition, as-is sellers still need to meet federal and state minimum disclosure standards. For example, you’ll still be made aware of potential issues like lead paint when you buy a home as-is. Understanding what an as-is seller is required to disclose can help you make the right decision for your individual needs.

Understanding minimum property requirements for different loans

As-is home sales are particularly popular with professional investors, especially if they’re looking for a property to flip. Because they have already planned to do significant improvements, it doesn’t really matter what kind of issues are present. However, every property loan has minimum property requirements (MPRs) that a home has to meet before you can qualify a loan. The goal is to give the lender some confidence to ensure that they will be able to sell the house if the borrower defaults or forecloses.

• Conventional loans: Conventional loans are from private lenders, often banks or credit unions. These tend to be the most common kind of home loan. The MPRs for conventional loans are usually that the house is safe, sound, and structurally secure, and any issues aren’t so extensive that they affect the safety, soundness or structural integrity of the home. If you are unable to get a conventional loan for the property based on its physical state, however, you might want to reconsider whether that property is actually right for you.
• USDA loans: USDA loans are specifically created for people buying homes in agency-defined rural areas. The criteria for a USDA loan is “decent, safe and sanitary,” such as working plumbing, sewage and water systems, a working HVAC and electrical system, and pestilence-free. If the property doesn’t meet these terms, you might need to make repairs before or shortly after closing.
• VA loans: Service members, veterans, and surviving spouses may qualify for VA home loans. MPRs are one of the strictest of these options — the home needs to be nearly move-in ready upon purchase. In addition to structurally sound, safe, and sanitary properties, they also look for issues like clean water supply, functioning electricity, roofs in good conditions, heating, mechanical issues, and adequate drainage.
• FHA loans: FHA loans are designed to support buyers who might not qualify for conventional mortgages. These home loans typically offer low down payment options as well as generous credit criteria. However, you will still need to ensure that the house is safe. The property needs to be free of “all known environmental and safety hazards” as well as any adverse conditions which affect the occupants’ health and safety. If the property doesn’t meet an appraiser’s standards, you’ll need to make the required repairs before the loan is finalized.

What to do before putting in an offer on an as-is home

There are ways that you can ensure the process goes smoothly when buying a home as-is, and that your chosen property will suit you throughout the years. Here’s what to do before putting in an offer:

• Hire a Realtor: Realtors often have experience with buying property as-is. If you’re considering an as-is home, work with a professional who knows the requirements and can tell you if you’re making a wise decision — as well as what you’ll need to do after the sale goes through.
• Get an inspection: Home inspections are a must-have when you consider buying a property as-is. You can ask your real estate attorney or agent to write an inspection contingency into the contract, which can protect you if the inspection results are more onerous than you expected at the outset. That said, as-is sellers may decline to accept your offer contingent on an inspection.
• Conduct a title search: As with any home sale, you need a title search to ensure that the seller has full rights to the property. You may find out that there are outstanding liens or other issues which could affect you after the sale. Afterwards, make sure to get title insurance.
• Talk with an insurance agent: Insurance agents have a vested interest in insuring homes that are “good bets” — that is, they won’t have to pay out on a policy. If you’re in doubt, ask an insurance agent whether they would be able to insure the property.
• Consider a home warranty: Home warranties cover repair and replacement of basic home systems, including heating, air conditioning, ovens, refrigerators, and more. This isn’t the same as home insurance, which covers the cost of events which damage your home. Home warranties cover aging and wear and tear for systems and appliances.

→ Find out whether homes come with appliances

Budget for the cost of critical repairs

If you plan to buy a home as-is, it’s important to understand what kind of repairs are needed and what the cost will be. Make sure to have your general contractor or other trusted professional walk through the home and evaluate what you’ll need — as well as how much it costs. Always plan for the worst-case scenario when buying as-is. Being conservative in your approach can leave you in a good position to tackle issues if they arise. 

While it can be incredibly difficult to estimate the cost of upkeep for an as-is home, it’s a good rule of thumb to plan to pay the difference in the purchase price vs. the appraised value in improvements. For example, if you buy a home as-is for $200,000 and the appraisal comes in at $230,000, it’s smart to budget $30,000 in repairs. Keep in mind that this is subject to the condition of the house.

→ These are the most expensive home repairs

Should you buy a property as-is? 

Buying as-is is an individual decision, so only you can tell whether a property will meet your needs. However, there are certain pros and cons you can keep in mind as you approach an as-is sale. If you’re going to renovate a home no matter what, as-is properties can be a real bargain. This is especially true if you’re going to purchase with cash — you’re likelier to get a great deal on the price. If you’re handy or have the means to fix up a home affordably, an as-is sale can save you a lot more money upfront. 

Buying a home as-is can leave you vulnerable to potential issues with the property. It can be expensive and tough to renovate a home, but you might be able to snag a true beauty at a much lower cost. However, in a seller's market where demand is high, the asking price on an as-is home could still be high, making it feel like less of a deal.

The pros of buying as-is

• Lower price: One of the most significant benefits of buying a home as-is is that you may be able to purchase the property at a lower price. Sellers often price their homes lower than market value in as-is sales to compensate for any repairs or renovations that need to be made.
• Bargaining power: As a buyer, you may have more bargaining power in an as-is sale. If you're able to identify issues with the property, you can negotiate with the seller to lower the price or make concessions.
• Opportunity for renovation: Buying a home as-is can provide an opportunity for renovation. If you're handy or have experience with home renovations, you can take on the challenge of fixing up the property yourself. By doing so, you can customize the home to your liking and increase its value.

The cons of buying as-is

• Hidden issues: The main disadvantage of buying a home as-is is the potential for hidden issues. With no obligation on the seller's part to disclose defects or damage, you may be taking on significant repair costs that were not accounted for in the purchase price.
• Financing challenges: Obtaining financing for an as-is property can be challenging. Lenders typically require a property to meet certain standards before they approve a mortgage, and an as-is property may not meet those standards. You may need to explore alternative financing options or be prepared to pay a higher down payment or interest rate.
• Higher risk: Buying an as-is property comes with a higher risk than buying a property that has been thoroughly inspected and repaired. If you're not experienced with home renovations, you may encounter issues that are beyond your skill level, which can result in additional expenses and delays.

Buying a home as-is can be a viable option if you're willing to take on the risk and have the necessary resources to address any issues that may arise. It's important to have a thorough understanding of the property's condition before making an offer and to work with a real estate agent or attorney who can guide you through the process. With the right approach, buying an as-is property can be a great way to save money and build equity in your home.

FAQs

Here are some more answers about buying a house as-is.

Q: What is an as is condition clause?

An as is condition clause is a provision in a real estate contract that states the property is being sold in its current condition, and the seller is not responsible for any repairs or defects. It's important to have a home inspection done before agreeing to an as is condition clause to ensure you are aware of any potential issues with the property.

Q: Can you get a mortgage on a house that is as-is?

Yes, you can still get a mortgage on a house that is being sold as is, but it may be more difficult to secure financing. Most lenders require that the property meet certain standards and may not be willing to provide a mortgage on a property that needs significant repairs or has structural issues. You may need to explore alternative financing options or be prepared to pay a higher down payment or interest rate. It's important to speak with a lender to understand your options.

Q: What are the risks of buying a home as is? 

The main risk of buying a home as is, is that you may be responsible for costly repairs or maintenance issues that were not disclosed or discovered during the inspection. It's important to thoroughly research the property and understand the condition before agreeing to an as is condition clause. Additionally, if you are unable to secure financing or afford the repairs, you may lose your investment in the property.

Q: Can you negotiate the price of a home being sold as is?

Yes, you can still negotiate the price of a home being sold as is. The seller may be more willing to negotiate the price if they are not required to make any repairs or renovations. It's important to have an understanding of the property's condition and the estimated cost of repairs before making an offer. You may want to work with a real estate agent or attorney to negotiate the best deal.