real estate

When selling a house 'as-is,' you still have to disclose any problems

Steve McLindenDear Real Estate Adviser,
I am going to sell my house "as-is." Do I still need to provide the disclosures to the buyers? What does this include? Also, I have 2-room add-on. Do I need to show permits?
-- Lilly V.

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Dear Lilly,
On the disclosure issue, yes, you are still legally obliged to answer every question on the standard seller's disclosure property-condition form used by your state. But one of the joys of selling as-is, of course, is not being forced to remediate any of the flaws you fess up to or, at least hypothetically, make adjustments to the price. Buyers may force the latter issue in medium-to-cool housing markets, however.

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What to disclose

Disclosure topics will include plumbing and sewage issues, water-leakage, flooding and drainage problems, insect infestations, foundation and title problems, lot-line disputes and others, plus negative issues involving neighbors, though these can be highly relative.

You might wash out some buyers

But first, you should realize that an as-is listing has a potentially dampening effect on conventional buyers, who may have trouble qualifying for Federal Housing Administration, or FHA, financing if their lenders determine the house needs too many major repairs to be affordable going forward and/or livable. House flippers and their lenders would be more prone to bite on an as-is, but only if the house is priced right.

Unpermitted addition is a problem

We have a potentially bigger issue, however, in your 2-room addition, which I assume isn't legally permitted based on your concern about the paperwork. Buyers might look the other way on illegal additions, especially in California, where add-ons can spur steep spikes in property-taxes, but you're still legally obliged to disclose. The city won't see that disclosure.

Often, sellers say nothing about unpermitted work and just cross their fingers, especially if the work has been performed to code (which for safety's sake, I hope it was), then leave it to the buyer's inspector to detect or overlook. But this is risky business and possible fodder for a lawsuit. Buyers get angry when they feel they've been lied to about a property's condition, plus selling a home with unpermitted work passes on the legal liability to the buyer.

City might forgive

You can probably fix the code issue with the city. Many jurisdictions are inclined to grandfather unpermitted work and sign off on it "as built" for back fees and possibly a small fine, provided it's built to code. Sometimes, they'll require modification work but will seldom force an owner to actually tear down additions -- though it happens. Without identifying yourself, find out from the city's building department what steps such a homeowner must take to make things right. You should also know those 2 rooms will officially add square-footage to the tax rolls and possibly result in higher taxes than anticipated for the buyer.

At least clean up

By the way, as-is needn't mean do you can't employ some basic, cheap cosmetic touches to make the place more marketable, such as planting flowers, touching up fences, walls and baseboards, and clearing clutter and excess furniture.

When you're ready to sell, seek out a seller's agent with experience in selling such as-is homes and foreclosures. Good luck!

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