When it comes to real estate investing, one cannot ignore the importance of due diligence. More so with foreclosed properties, which are all for sale on an “as is where is” basis. But what does “as is where is” mean in real estate? Continue reading to find out.
What does the term “AS IS WHERE IS” mean in real estate?
In a nutshell, the term “as is where is” means the buyer will inherit all of the physical and legal conditions of the property he’s going to buy, as is! In other words, you get everything that comes with a property, in its present state and condition, and the seller makes no warranties, if you buy it.
To give you an idea, answer the following:
Does a property need lots of repairs?
Does the property have defects?
Does it have illegal occupants?
Does the property title have problems/issues?
Is the property located beside a garbage dump or cemetery, etc?
Does the property have any arrears (unpaid bills for electricity, water, dues, real property taxes, etc.)?
If the answer to any of the above questions is yes, then the buyer expressly agrees to buy the property in such condition(s), and any costs related to fixing any of these problems will be for the account of the buyer.
This is the reason why banks and other sellers of foreclosed properties (like Pag-IBIG) highly encourage interested buyers to inspect and verify the physical and legal conditions of the foreclosed properties before they buy.
Banks expect interested buyers to have already done their due diligence, including an “ocular” or visual inspection, BEFORE the auction, or before signing a binding purchase and sale agreement.
This leads to another common question:
“But shouldn’t the bank just tell me upfront if a foreclosed property has any problems, issues, special concerns, etc?”
The answer to the above question is “Yes”, you can expect banks to have a “Full disclosure Policy”.
But while interested buyers can expect banks to fully disclose any information they have about their foreclosed properties for sale, I still believe that it is the buyer’s duty to do his/her own due diligence, let me explain below.
You still need to do your own due diligence
You need to do your own due diligence to check both the physical and legal condition of the property for problems and/or defects.
You need to have a good understanding of how much repairs are needed, or if the property has any physical defects to begin with.
Most importantly, you need to verify if a property is vacant or occupied, or who has possession of the property.
I remember one time my wife and I inspected a foreclosed property, and we thought we were talking to the caretakers of the bank. Turns out they were relatives of the previous owner. Scary right?
Anyway, to do all of the above, you have to personally inspect the property.
Here’s a video of how I did a foreclosed property inspection.
Legal Conditions and other aspects
You also need to check for any pending court cases or “lis pendens” related to the property being sold.
If it turns out there is a pending or ongoing court case, and you decide to buy the property, you will take over the court case from the seller. You better talk to your lawyer and seek legal advice first so you’ll know what you’re getting into if you buy the property.
Other things to check: Does it have any liens, encumbrances, or any technical problems/discrepancies, etc?
You need to check just in case the bank was not aware of them, if any.
As the famous Russian proverb goes:
Trust, but verify!
In other words, while you can expect the bank to tell you things as they are based on the information they have, you still need to do your part by asking the right questions and finding answers on your own, just to be sure.
You need to verify the answers that you will get as part of your due diligence.
Happy with the property condition?
After you have visited the property for proper due diligence, all the information you have gathered should help you in deciding whether to go ahead and accept the property.
If you’re not happy, you can try to negotiate with the seller for a purchase price that would help offset any cost involved with fixing any problems/defects you have found. Do this before you finalize the purchase.
Once you agree and sign a purchase contract, the property is considered sold in its current condition, and you won’t be able to negotiate with the seller anymore.
Remember, any foreclosed property you buy shall be sold on an “as is where is” basis, and I hope I have answered the question “What does as is where is mean?”.
This highlights the importance of due diligence. Once you purchase the property and later find problems you missed, you shall not be entitled to any refunds if you back out (any payment you’ve made will be forfeited).
It does not matter if you are a real estate investor looking for a property to flip/keep as a rental, or if you are just looking for your own home, you still have to do your due diligence. It can help you distinguish a horrible property from a good one.
If you still have questions, please go ahead and ask them by leaving a comment below!
To our success and financial freedom!
Real Estate Investor
PRC Real Estate Broker License No. 3194
Text by Jay Castillo and Cherry Castillo. Copyright © 2023 All rights reserved.
Full disclosure: Nothing to disclose.
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Photo Credit: Jardin des Tuileries @ Paris by *_*, on Flickr