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Legally speaking: What does an “as is” clause really mean?

By Lorie Garland, OAR Assistant Vice President of Legal Services

The OAR Legal Assistance Hotline receives an array of real estate-related legal questions — including license law issues, disclosure, contract law, ethics and commission problems, among others. In an effort to help you work within the law, our “Legally Speaking” series spotlights some of the timely questions that are being asked by REALTORS. This one involves the issue of “as is” in contracts…

Q: What affect does an “as is” clause in a purchase contract have on a seller’s duty to disclose property defects?

A: Generally, a seller has the duty to disclose known latent defects. These are defects that the seller are aware of and are not easily discoverable upon a reasonable inspection of the property. An “as is” clause eliminates a seller’s duty to disclose material latent defects. This clause would protect the seller in a lawsuit by the buyer for damages incurred by the seller’s failure to disclose a defect.

An “as is” clause, however, will not prevent the seller from being liable if the seller is found to have engaged in “active fraud.” “Active fraud” requires an act by the seller such as concealment of a defect or misrepresentation of a condition of the property. An example would be if the seller is aware of a foundation problem and when questioned by the buyer states that there is no foundation problem or conceals the foundation problem with boxes so that the defect cannot be discovered by a reasonable inspection.

It is imperative that buyers and sellers review the terms of the purchase contract. When a buyer contractually agrees to accept a property “as is,” the seller is relieved of the duty to disclose and will not be liable to the buyer for nondisclosure of a defect unless it can be shown the seller engaged in fraudulent concealment, fraudulent inducement or fraudulent misrepresentation. REALTORS should keep in mind that all contract terms are negotiable and if a client questions the significance of an “as is” clause or, for that matter, any term of the purchase contract, the client should be referred to their personal attorney.

Click here to access OAR’s Disclosure Issues White Paper for additional information on “as is” clauses and fraud.

Tags: legal, Legally Speaking