Sell My House As-Is

Are you wondering to yourself, “How can I sell my house as-is?”

First we should probably start with the definition of “as-is”. This term is thrown around loosely, so we may as well define it for the sake of this article.

As-is could be defined as:

  1. The seller makes no repairs. The current condition of the house is the condition that the buyer purchases the home. No repair requests by the buyer are made. There could be code enforcement violations with the local building code enforcement jurisdiction (such as deteriorating siding, collapsed roof, etc.). No repairs being made by the seller are typically the basis for selling “as-is”.
  2. The seller may also to choose to sell “as-is” if there are liens or judgments against the property. The seller would need to disclose any liens or judgments up front to the buyer. This transparency can help make for a smoother selling experience. Even if the seller doesn’t disclose the liens or judgments, these items will come up when the attorney does their title search, however depending on the amount of the liens or judgments this could deter the buyer from wanting to move ahead with the purchase. Being up front will help save everyone’s time and minimize any hiccups along the way. For reference here are basic definitions of judgments liens and property liens.
    1. Judgment lien – A creditor obtains a judgment lien by winning a lawsuit against you. While creditors have numerous options to collect on a debt, creditors use judgment liens as the main way to ensure you actually pay the debt off.
    2. Property lien – When you finance a house or car, you sign a contract promising to repay that debt. Because the amount of money you borrow is so large, the creditor requires something to help minimize the financial risk it takes when it lends you this money. You voluntarily give the creditor rights to your property in the event of a default. The creditor accomplishes this by making the offer to finance the purchase of the property conditional on you giving it a lien on that property. If the creditor has a lien, if you default on the terms of the agreement (for example, don’t pay your mortgage), the creditor may take action to repossess or foreclose on the property you pledged as a security interest. This agreement is referred to as a property lien.
  3. The seller has back payments. Sometimes homeowners face circumstances that prevent them from making their mortgage payment – such as medical bills, losing their job, loss of a family member, and more. When sellers get behind on their payments, they may decide that selling the property is the best way to pay off the debt and avoid a foreclosure action. Similar to liens or judgments, the seller should be transparent with the buyer that there are back payments. The closing attorney will find out about any back payments when they request the mortgage payoff statement from the lender. Again, if the back payment issue is made clear to the buyer, this will ensure a smooth transaction, that doesn’t lead to surprises. Time is of the essence when facing back payments that can lead to losing a home to foreclosure. Therefore, the seller should disclose such issues to ensure time is not wasted, especially when a foreclosure action is pending on the property.
  4. The seller does not issue any closing cost credits. Most younger home buyers (especially first time home buyers), will request for closing cost assistance because many do not have large savings accumulated early in their working lives. If the seller is selling “as-is” they may state upfront that they are not paying any closing costs.

Challenges in selling my house as-is

If you are interested in selling your house as-is, you need to consider your buyer pool. Most retail buyers that are using a realtor and looking for homes on the MLS are not comfortable buying homes “as-is”.

This is for a few reasons:

  1. The bank has to approve the loan for the property. The bank will have an appraisal done, and also depending on the lender, they may have an inspector put together a small report on the overall condition of the home. If the bank does not feel the home is a true asset, in terms of being worth the sales price, the bank will not finance the property. In this case the buyer would need to pay cash for your property. Many homes that are sold as-is may have water damage, fire damage, major structural issues, and more. Banks will typically not loan against these types of houses because of the risk that comes along with making the loan against a property with questionable value, then trusting the buyer can come out of pocket to correctly make the repairs, and still have money to pay the monthly mortgage payment. Most buyers do not have experience with performing extensive repairs and are likely to underestimate costs, timeline, and overall scope of work.
  2. If the retail buyer can get financing, you will be looking for a small portion of buyers that are comfortable making repairs themselves. Most buyers don’t want to spend large amounts of money out of pocket, let alone to pay a contractor to come in and do the work. For this reason, you are looking for a small portion of buyers that 1) have some construction experience so they can actually do the repairs and 2) have the money to afford the repairs out of their pocket. You can see that your buyer pool is becoming much smaller than a traditional transaction where your house is not sold “as-is”.
  3. Most retail buyers will not be able to pay off liens, judgments, all their own closing costs, and still afford to make repairs on the property. Most retail buyers simply do not have the cash reserves to make the “as-is” purchase a reality, by the time all the actual costs are factored in.

Who will buy my house as-is?

Due to the challenges noted above with trying to sell to a traditional retail buyer, most sellers looking to sell their house as-is have the best luck with selling to an investor.

There are several reasons why this proves a preferable option for sellers:

  1. Investors are cash buyers. As noted above most retail buyers have to get a mortgage and the bank has to approve it also. Investors typically purchase with cash, therefore there is no need for appraisals, inspectors, bank approval, or lengthy waiting times for mortgage underwriting (typically takes a minimum of 30 days).
  2. Investors buy houses that need work everyday. Experienced investors are comfortable buying houses that need extensive work. With their experience they can walk through a house, develop their cost estimate, understand the project timeline, and are able to accurately determine what they can afford for the property.
  3. Investors buy houses with liens and judgments. Ask a traditional retail buyer about liens and judgments and they’re likely to get uncomfortable. Investors understand how to account for paying liens and judgments at closing and how that factors into their overall purchase price, while still considering the estimated repair costs.
  4. Investors will not ask for closing cost assistance. At this point, you probably realize that investors have cash reserves to afford houses “as-is” without requesting for the seller to pay for items out of their pocket. That means when you come up with a price, you won’t have to worry about paying a bunch of costs or fees at closing.
  5. Investors don’t use realtors. Most investors buy direct from the owner. That means you don’t have to pay a buyer’s agent their 3% commission at closing.
  6. You won’t have to get your house “ready” or clean it up for an investor. When selling to a traditional retail buyer you may feel pressure to clean up the house to have it somewhat “show-ready”. Investors buy houses everyday that have rooms filled with left behind belongings and that haven’t even had a broom run across the floors.

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