Frequently, buyers and sellers of San Francisco Bay Area real estate want to know the effect of an “As-Is” provision in a purchase agreement.  In both residential and commercial transactions in California, sellers need to disclose facts materially affecting the value or desirability of the property, where the seller knows that such facts are not known to, or within the reach of the diligent attention and observation of the buyer.  The inclusion of an “As-Is” provision (i.e. buyer agrees to purchase the property in its present physical condition) into the purchase agreement does not excuse the seller from fulfilling their disclosure obligations.

This is exemplified in a U.S. Supreme Court from nearly 200 years ago.  In the case of Smith v. Richards, the seller of a “gold mine” represented to the buyer that “I, however, sell it [the mine] for what it is – gold or snowballs [sic].”  As one might guess, the property contained neither gold nor snowballs.  The seller’s attempt to claim he was insulated from liability because he sold the property to the buyer “with all faults” was not countenanced by the Court.  Of course, it probably did not help the seller’s argument that he purportedly provided specimens of gold ore to the buyer and claimed that they were from the mine.

How could the Court reach this conclusion if the seller sold and buyer voluntarily agreed to purchase the property “with all faults”?  Simple.  The “with all faults” clause, or any other exculpatory phrase or provision, did not relieve the seller from making required statutory and common law disclosures in the real estate sale.  Similarly, the use of an “as-is” clause would not compel a different conclusion.  Known defects must be disclosed by the seller and the seller’s broker if they are not reasonably observable or discoverable.

“As-Is” provisions are regularly included in California Association of Realtors® (CAR) and Peninsula Regional Data Service (PRDS) real estate purchase and sale agreements.  If you are the buyer, do not be dissuaded from pursuing a potential nondisclosure claim based on such a provision.  Similarly, if you are the seller, do not mistakenly believe that you are shielded from liability should you fail to disclose material facts regarding your property.

If you have any question about “as-is” provisions, or any other real estate-related issue, please feel free to call us at 408-290-8228.

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