Most all buyers in Maryland will look to protect themselves with some inspection contingency to allow them to walk away from the deal if the inspection turns up trouble. In Maryland, the two main methods to handle this are through the Property Inspections Addendum or the As Is Addendum.
The basic concept of the Property Inspections Addendum is to condition Buyer’s purchase of the property upon a satisfactory Home Inspection (discussed extensively in my blog entry Navigating the Broken Inspection Contingency). Through this addendum, the Buyer may present a list of “unsatisfactory conditions” identified on the Inspection Report and require that the Seller make specific repairs. If the Seller refuses to make such repairs, the Buyer may cancel the Contract of Sale. However, if the Seller agrees to all requested repairs, the contingency is satisfied and the contract remains in full force and effect.
Unlike the Property Inspections Addendum, the As Is Addendum doesn’t contemplate requested repairs at all. This form is broken into two parts – the Buyer may fill out either Section A or Section B. Section A states that the Contract for Sale is strictly As Is and without any inspection or contingencies regarding the condition of the property. Section B, on the other hand, reserves the right for an inspection, and also provides that the Buyer reserves an unconditional right to terminate the contract if Buyer is dissatisfied with the results of any inspection.
Which Addendum Should You Use?
In most instances, the standard Property Inspections Addendum is best for everyone. Buyer reserves the right for an inspection, and if the Buyer learns of some significant defect, the Buyer may require such defect be fixed or else the contract can be voided. However, this does not provide that the Buyer can unilaterally terminate the contract. Rather, this addendum provides an important right of repair for the Seller to keep the contract alive. Sellers understand that Buyers will want some kind of inspection contingency, but at least this addendum provides the Seller with an express right to repair.
The true “As Is” option is useful tool to strengthen an offer, but is extremely risky for Buyers. In hyper competitive markets, some Buyers will choose to waive any right to terminate based on the condition of the property (as contemplated in Section A of the As Is Addendum). This does make an offer extraordinarily appealing for a Seller who wouldn’t need to worry about a Buyer backing out due to some condition released in the Inspection Report. However, this strategy should be reserved for only the most sophisticated Buyers or investors with full knowledge of the risks involved.
The As Is Addendum With Inspection and Right to Terminate is a bad deal for the Seller and will weaken a Buyer’s offer. Despite the “As Is” language here, this provision instead creates extraordinary rights for the Buyer to void the contract. This provides that the Buyer will get an inspection, and further reserves an unconditional right to terminate if the Buyer is “dissatisfied with the results of any inspection” (as contemplated in Section B of the As Is Addendum). Buyers need to understand that this condition will significantly weaken an otherwise strong offer. In fact, if I am advising a Seller, I would suggest that such an offer is not very serious since the Buyer can basically void the contract for any reason at all. Moreover, the Seller in this case doesn’t even have an opportunity to “save” the deal through repair commitments. Ultimately, I view this as a tool for “tire-kickers” and perhaps savvy investors who wish to keep their options open to back out of the deal. But good luck getting this accepted in any sort of a competitive market.
People screw this up all the time.
It appears that many Real Estate Agents don’t understand the As Is addendum. For Section B, People see the words “as is,” and they see that it doesn’t reference any required repairs, so it must benefit the Sellers, right? That’s not how it works in practice. Buyers will get their inspection and they will STILL try to negotiate repairs or concessions. And what’s worse, Sellers lose their right to repair to satisfy the contingency. Just use the regular Property Inspections Addendum.