FAR BAR As-Is Series: Part I

As promised, this is going to start off a short series on the FAR BAR As-Is Contract. I was feeling bad about how long it has taken me to get a new post on here, but it turned out for the best. Last week I gave a short little presentation on the As-Is to a group of investors at the Leverage Connections Network Meeting and the questions from the attendees were fantastic. Their questions made me more aware of what content will be helpful for newbie investors – and some more experienced ones who may have gotten a little lazy. Sorry, truth hurts.

Before we get into the terms of the contract let’s first have a quick little discussion about what using an As-Is Contract means. An As-Is offer means the buyer accepts the property in its current As-Is physical condition. That means if the house has a bad roof buyer accepts the responsibility of that roof. It does not mean buyer accepts the fact that there is an open roof permit pulled to fix the roof or that there is a code lien on the property due to the roof. The permit and code lien are a title issue  – not a physical condition. Clear?

Now on to actual language of the contract.

1. Buyer and Seller Names:

Brendon Spalding is a friend who works at Altura Investment Realty and has been a top investor agent for years so I wanted to know what he thought was important for investors to know about the As-Is. At first I thought he was kidding when he told me he would give an entire lesson on using the Names section of the contract. How hard can it be to fill in the name of the Buyer and Seller, right?  Then I thought about it. He is totally right. Want to annoy your title agent? Put “Owner of Record” in the Seller blank. A picky title agent is going to make you do a name change addendum to get the correct Seller name (By the way- you want a picky title agent but that is a whole topic in itself). As for the buyer name… don’t assume the person talking to you on the phone or meeting you at the house is your buyer. It could instead be their LLC, their trust, their IRA, they could have a POA to act on behalf of another entity, etc. The wrong buyer name could delay your closing or even worse - totally kill your deal.  As an example, a bank will not let you change the name of buyer on a short sale deal. If you got the buyer name wrong then you probably killed your own deal.

2. Inspection Period

Don’t be so quick to give up your inspection period thinking that a 0 day inspection period will help you win the deal. Want to know what will get you the winning bid? The right price with no financing contingency.  Simple.

If you are wholesaling or assigning this deal you need that inspection period to find your end investor. If you don’t find the end buyer you can bail during your inspection period and still get your deposit back. Keeping in mind of course, there is nothing that will make your name mud faster than bailing on a bank agents’ deal. They tend to frown upon investors wasting their time, and let’s face it - they don’t like us that much anyway. Please don’t make it worse for the rest of us. Work that inspection period.

3.  Additional Clauses Section

Look at it. It’s blank. Just a bunch of lines. Your printer is not broken. It's is not a mistake. They are there for a reason. USE THEM. You can put anything here. You can even override some of the language already in the body of the rest of the As-Is. Cap your closing costs, make buyer pay commissions, detail a leaseback if you aren’t getting possession at closing, make sure buyer understands and agrees to buy lunch for the attorney helping with your closing, etc. Just kidding about the lunch thing, but it would be awesome. 

I will give you a personal example of how I used this section. I sold a house in 2014 and got an offer for more than asking price. I knew, for sure, that my house would not appraise at that price. To ensure that I was not wasting my time and that I had a serious buyer, I added that in the event the house did not appraise buyer must bring the difference in cash. Sure enough the house did not appraise ($60K under). My buyer wasn’t expecting THAT big of a difference and wanted to bail. That meant I was entitled to their deposit. Luckily I am not a ruthless money hungry attorney as depicted in all the attorney jokes. Also, lucky for them, I also had a back up offer and gave them their deposit back. Even so, you can see how that additional language would have helped compensate me for the time the house was off the market due buyer ignoring/waiving a disclosure I was nice enough to make. 

Your additional clauses language may change on every deal. Be creative.

These are the 3 basics that first came to mind. Next time we will get in to some minutia. Most of you know that I am in house counsel for a title company so Part II of the As Is series is going to focus on the Title section of this contract.

If there is a particular aspect of the As Is you would like discussed just request it in the comments section of the blog and I will try to address it.