This article series comments on an owner’s auction of real estate and reviews how brokers and agents can generate fees by performing due diligence investigations, advising and representing buyers at auctions.

Part II of this article series discusses the agent and buyer’s bidding strategy prior to auction and the role of the buyer’s agent during the auction. Part I of this article series comments on an agent’s pre-auction activities.

The illegal “as-is” sale

Consider a listing broker who, on conducting his visual inspection of an owner’s property to be sold at auction, has reason to believe the property fails to conform to building and zoning regulations.

At the auction, the listing broker and auctioneer informs all prospective buyers that the property is sold as-is. In addition to this verbal representation, a provision in the purchase agreement states the listing broker makes no representations regarding the property and will incur no liability for any defects since the buyer agrees to purchase the property “as is.”

Editor’s note – This “as-is” clause is not unique to just purchase agreements used in real estate auctions. In defiance of state laws, the April 2010 revision of the purchase agreement published by the trade union included problematic and unenforceable “as-is” language.

After closing, the city refuses to provide utility services to the residence due to building code and zoning violations.

The buyer makes a demand on the listing broker for his money losses due to overpricing and the cost of corrective repairs.

The buyer claims the listing broker breached his general agency duties owed to the buyer since he failed to disclose material defects in the property known to the broker, but not the buyer.

The broker claims the buyer waived his right to collect money damages when he signed the purchase agreement with the “as-is” disclaimer.

Does use of an “as-is” disclaimer provision shield a listing broker from liability for the buyer’s losses caused by the building and zoning violations which were suspected to exist by the broker and not known or suspected by the buyer?

No! The listing broker has a general duty, owed to all parties in the transaction, to personally conduct a competent visual inspection of the property sold. Based on his inspection, he is to disclose all known and observable property conditions which adversely affect the value and desirability of the property which are not already known to the buyer. The breach of this duty by the list­ing broker’s failure to disclose his knowledge or observations about potential adverse conditions is not excused by writing an “as-is” disclaimer into the purchase agreement in lieu of factual disclosures.

“As is” provisions are unnecessary to explain the condition of property when information re­garding defects is included in the TDS.

“As is” provisions become unnecessary to explain the condition of the property when information re­garding defects is included in the TDS and handed to the buyer prior to auction. The broker simply discloses the defects, and whether the seller will or will not make repairs.

Further, public policy prohibits the sale of one-to-four unit residential property “as is.” All buyers pur­chase property in the condition “as disclosed” by the seller, the seller’s broker and that broker’s agents, and as actually observed by the buyer prior to entering into the purchase agreement. When defects are disclosed prior to entering into a purchase agreement, negotiations may call for the seller to correct some or all of the disclosed defects. If not, the buyer takes the property subject only to the defects as disclosed. [CC §1102.1(a)]