“As-Is” vs. “Warranted Sale” Contracts & Open Permits
Today my friend and colleague, Beth Butler, COO of EWM Realtors and I, discuss one of the recent changes to the Florida Association of Realtors contract. Hopefully this discussion will shed some light on how these changes may impact the consumer with regard to open building permits, and the rights and obligations of both parties in as-is vs. warranted contracts.
Beth: Kevin, how would you describe an as-is sale from the standpoint of the seller?
Kevin: Well Beth, very simply put, in an as-is sale, the seller is not contractually obligated to repair any items.
Beth: From the buyer’s standpoint, what happens if the buyer finds something, as a result of the inspection that they can’t live with? Must they proceed with the sale on an as-is basis?
Kevin: No, the buyer has a few choices, including:
1. Accept the property in it’s as-is condition
2. Negotiate the finding with the seller
3. Cancel the contract.
Beth: Ok, so in short, the buyer does not lose the opportunity to discuss any negative findings, even though the contract says he is buying the property as-is?
Kevin: Correct.
Beth: On a warranted sale, is the seller agreeing to fix everything regardless of cost?
Kevin: Not necessarily. The contract will provide a dollar amount within which the seller agrees to repair all items which are considered warranted items. This way the seller understands the limit of his financial commitment to repairs at the time the contract is signed. The buyer also benefits because he has some assurances that the seller will address concerns within a reasonable cost limit. By having a pre-arranged agreement for repairs, both parties have a reasonable expectation that concerns will be addressed, and the property will close without further need for negotiations after the inspection phase.
Beth: How do you usually sell your listings? As-is or warranted?
Kevin: As-is. It has been the standard for about the last 10 years here in Miami Beach. At this point in time I don’t see the new contract impacting the practice in the near term.
Beth: Even in condos?
Kevin: Especially in condos. The condos that I deal with tend to be newer and have fewer repair issues. So I really don’t see the new contract changes affecting my clients dramatically, except that we will discuss the pros and cons of as-is vs. warranted contracts.
Beth: And what about open building permits? Do your sales include the closing of permits?
Kevin: Yes, for the last few years we have been manually adding the open permit language to the contract in the addenda, which basically obligates the seller to close any open building permits that are attached to the property before closing.
Beth: Well, the new contract might change the way you do things.
Kevin: That is what I hear, and I do think it expands the options of the parties. But as I stated before, I don’t see any dramatic impact on common practice in the near term.
Beth: The new contract has some major changes; one of the changes addresses the treatment of open building permits.
Kevin: Open permits have been an issue here in Miami ever since Hurricane Andrew. The new contract also includes a provision for structures that have never had a permit, which could be a bigger problem than just an open permit.
Beth: Can you explain that provision?
Kevin: Sure. Permits and non-permitted items are now considered to be a repair item, just like the roof and termite. In fact, the standard contract now even includes a liability cap for permits.
Beth: So, what you are saying is that now, when a property is sold as-is the warranty and liability obligation for the seller does not exist?
Kevin: Only if the buyer chooses to accept the property on that basis. The parties still retain the right to negotiate based on the specifics of each sale.
Beth: I’m seeing a slight trending back to a warranted sale because sellers do not want their property off the market while buyers continue to shop for homes during the inspection period. An as-is contract essentially gives a buyer a free “look-see” during the inspection period while having the option to easily cancel the contract if they find another property.
Kevin: Yes, since the market has changed to a buyer’s market, it benefits sellers when they are willing to make more of a commitment to the property repairs; fewer surprises and a stronger commitment from both parties from the beginning.
Beth: So, the new contract really encourages as-is only because of the open permit situation?
Kevin: It would seem so. It makes it easier to purchase as-is, but again, that contract really benefits the buyer. The warranted sale commits both parties a bit more. If a seller knows his/her property is in good condition, it would benefit the seller to have a warranted sale contract.
Beth: Let’s give an example her to clarify the difference with regard to permits in the new contract (FAR 9).
Kevin: Ok.
Beth: You said that you usually do an as-is contract with an addendum for the seller to close any open permits. You can’t do that anymore.
Kevin: Correct. Open permits/non-permitted items are now considered a repair item and the get treated just like roof and termite defects.
Beth: So what happens if a buyer finds an open permit in an as-is sale?
Kevin: The buyer can cancel the contract ONLY if they are within their inspection period.
Beth: So, if the buyer doesn’t check the permits until two days before closing, which happens all the time, is the buyer out of luck?
Kevin: If the buyer is out of their inspection period, yes. A good agent would immediately inform the buyer to check to see if the property has any permit issues. To be clear, this is the responsibility of the buyer, NOT the agent.
Beth: So the moral of this story is for the buyer to do a permit check during the inspection period?
Kevin: Yes, do if right away. You can check anytime even BEFORE presenting an offer, which I strongly recommend so the buyer can address any issues when writing the offer and not wait until the inspection phase. It is better to address the expectations and responsibilities of both parties up-front. You can check them on-line for the City of Miami Beach here or for Miami-Dade County, here.
Beth: In conclusion, I would add that the City of Miami Beach and Miami-Dade County have GREAT sites for consumers to check for permits. There are Title companies and permit checkers that will do this as well.
I would like to thank Beth for taking the time to review this topic with me. My goal for this post, and many more to come over time, is to provide consumers with the opportunity to be a “fly on the wall” during discussions I have with colleagues, clients and external industry professionals. Thanks for joining us!
