The Great “As Is” Debate
Posted on December 1, 2012 by Bethany
The AAR “As Is” Addendum is intended for use when the seller is selling a home in its existing condition (“As Is”). The Addendum was first developed in 2005 and underwent minor revisions for clarity in 2009. Recently, some questions have been raised about the buyer’s rights pursuant to Section 6j of the AAR Residential Resale Purchase Contract (2/11) (“Buyer Disapproval”) when the “As Is” Addendum is incorporated into the contract.
Answer: Yes, the Addendum was always intended to allow the buyer the opportunity to request repairs. When first developed in 2005, line 16 of the Addendum read “Buyer retains the right to cancel the Contract pursuant to Section 6j.” This line was revised in 2009 to “Buyer retains the rights pursuant to Section 6j” to clarify that the buyer retains both options in Section 6j of the residential contract: (i) cancel immediately or (ii) allow the seller the opportunity to correct any of the items disapproved. Section 6j of the residential contract provides:
If Buyer, in Buyer’s sole discretion, disapproves of items as allowed herein, Buyer shall deliver to Seller notice of the items disapproved and state in the notice that Buyer elects to either:
1. immediately cancel this Contract and all Earnest Money shall be released to Buyer, or
2. provide the Seller an opportunity to correct the items disapproved, in which case:
- Seller shall respond in writing within five (5) days or days after delivery to Seller of Buyer’s notice of items disapproved. Seller’s failure to respond to Buyer in writing within the specified time period shall conclusively be deemed Seller’s refusal to correct any of the items disapproved.
- If Seller agrees in writing to correct items disapproved, Seller shall correct the items, complete any repairs in a workmanlike manner and deliver any paid receipts evidencing the corrections and repairs to Buyer three (3) days or days prior to COE Date.
- If Seller is unwilling or unable to correct any of the items disapproved, Buyer may cancel this Contract within five (5) days after delivery of Seller’s response or after expiration of the time for Seller’s response, whichever occurs first, and all Earnest Money shall be released to Buyer. If Buyer does not cancel this Contract within the five (5) days as provided, Buyer shall close escrow without correction of those items that Seller has not agreed in writing to correct.
Question: Why does the buyer retain the right to request repairs?
Answer: The forms committee discussed this issue and ultimately determined that in most transactions, the seller would prefer to retain the opportunity to respond to a buyer’s repair requests (notice of items disapproved), even though the seller is not obligated to make any repairs or correct any defects that existed at the time of contract acceptance.
Question: What rights does the buyer waive pursuant to the Addendum?
Answer: The buyer waives the seller warranties pursuant to Section 5a of the residential contract. Therefore, the seller has no obligation to make any repairs to ensure that heating, cooling, mechanical, plumbing, and electrical systems (including swimming pool and/or spa, motors, filter systems, cleaning systems, and heaters, if any), free-standing range/oven, and built-in appliances are in working condition at the earlier of possession or close of escrow. However, the seller is obligated to maintain and repair the premises so that the premises is in substantially the same condition as on the date of contract acceptance, and all personal property not included in the sale and all debris will be removed. For example, if the swimming pool motor is not in working condition at the time of contract acceptance, the Addendum releases the seller from the obligation to repair it pursuant to Section 5a of the residential contract. If the swimming pool motor was in working condition at the time of contract acceptance, but malfunctions during escrow, the seller is obligated to make repairs so that the pool motor is in substantially the same condition at close of escrow.
The “As Is” Addendum also requires the seller to acknowledge that selling the home “As Is” does not relieve the seller of the legal obligation to disclose all known material latent defects to the buyer. Additionally, the buyer acknowledges that the buyer has been advised to seek appropriate counsel regarding the risks of buying a home in “As Is” condition. Both buyers and sellers should be educated about the provisions of the AAR “As Is” Addendum prior to its execution and counseled as to their rights and obligations in an “As Is” transaction.
Arizona REALTOR® Magazine — December 2012
K. Michelle Lind, Esq.
AAR Chief Executive Officer Michelle Lind is a State Bar of Arizona board-certified real estate specialist and the author of Arizona Real Estate: A Professional’s Guide to Law & Practice. This article is of a general nature and may not be updated or revised for accuracy as statutory or case law changes following the date of first publication. Further, this article reflects only the opinion of the author, is not intended as definitive legal advice, and you should not act upon it without seeking independent legal counsel.