“As-Is” Language in New Jersey Real Estate Contracts
Updated: Apr 29
Occasionally, Sellers wish to sell their homes “as is” or “in present condition.” In such a case, the Seller’s attorney will include an “as is” clause in the Contract of Sale or Attorney Review Letter. But what does the phrase “as is” actually mean?
Generally, a Seller will sell their property “as is” if they do not intend on making any repairs. Often, the general condition of the property is already accounted for or baked into in the purchase price and therefore, the Seller will be unwilling to address any of the Buyer’s inspection concerns.
There are two common mistaken beliefs regarding “as is” language. The first misconception is that the Buyer must move forward with the purchase regardless of what he or she finds during inspections. The second is that the Seller does not have to reveal any information regarding the condition of the home. This blog post will explain why these beliefs are untrue.
“As is” language does not mean that a buyer waives their inspection rights, and it does not mean that the Buyer must purchase the property regardless of the results of the inspection. Instead, it means that the Buyer enters into the transaction with the understanding that the Seller’s willingness to address inspection issues is very limited and that the Buyer should not nitpick at inspection items. The Buyer still has the right to request that the Seller address major defects that are uncovered during the inspection and not previously known to the parties. If the Seller is not willing to address those defects, the Buyer has the right to terminate the deal.
Buyers who are in the business of purchasing, rehabilitating, and reselling properties (sometimes referred to as “flippers”) often buy properties “as is” because it can be an opportunity to purchase a property at a reduced price and sell it at a gain. In some cases, these Buyers will not conduct any formal inspections prior to closing. However, flippers are not the only Buyers who purchase “as is” properties, and even flippers may choose to have various inspections performed.
A Buyer who purchases a property “as is” and intends to make it his or her residence will absolutely be instructed by their attorney to conduct inspections. Inspections that are standard to almost every residential real estate transaction include:
· General home inspection;
· Wood destroying insect inspection;
· Radon test; and
· Oil tank sweep.
In addition, some transactions may call for the following additional inspections:
· Chimney inspection;
· Pool inspection;
· Septic tank inspection; and
· Water well inspection.
If any of these inspections disclose major defects, the Buyer may request that the Seller address those defects. If the Seller is not willing to address those defects, the Buyer has the right to walk away from the deal. This principle applies whether “as is” language is included in the Contract or not. Simply stated, “as is” language does not mean that the Buyer will not be afforded the protections of an inspection contingency.
Seller’s Duty to Disclose
Notwithstanding “as is” language, in the state of New Jersey, a Seller of residential real estate has a duty to disclose all latent defects which are not readily observable to a buyer. Examples of latent defects include radon contamination, underground oil tanks, a history of water leaks, cockroach or termite infestation, or limitations on water service. If a Seller fails to disclose a latent defect which they have knowledge of, they may be subject to legal claims by the Buyer post-closing. The Buyer may seek to have the contract rescinded or may seek to recover damages from the Seller.
However, the above principle was not always the case. The doctrine of “caveat emptor” or “let the buyer beware” was the law of the land in New Jersey until 1974. Under the doctrine of “caveat emptor,” Sellers generally did not have any obligation to disclose facts regarding the condition of the property to a Buyer. The burden was on the Buyer to examine the property and take responsibility for its condition. Then, the New Jersey Supreme Court decided the case of Weintraub v. Krobatsch, 64 N.J. 445 (N.J.1974). In Weintraub, the Seller failed to disclose a cockroach infestation to the Buyer. The Court stated that the Seller’s failure to disclose the cockroach infestation may perpetuate a fraud upon the Buyer that would excuse the Buyer from performing under the Contract. The Court looked to cases from different jurisdictions that had begun to move away from the doctrine of "caveat emptor." One such case set forth that “one may be guilty of fraud by his silence, as where it is expressly incumbent upon him to speak concerning material matters that are entirely within his own knowledge.”
Since then, New Jersey courts have held that Sellers must disclose material latent defects which are not readily observable to the Buyer. In addition, the courts have imposed upon Sellers an implied warranty of habitability when selling a home. The entire home must be “habitable,” and if there is any condition that renders the home uninhabitable, it must be disclosed to the Buyer.
So, how does this apply to “as is” contracts? In Bonvie Stables, Inc. v. Irving, 350 N.J. Super. 579, 588 (App. Div. 2002), the court stated that “as is” clauses “were not intended to insulate [Sellers] against their misrepresentations or their concealment of information they were required to disclose.” In other words, Sellers cannot hide because an “as is” clause in a Contract and say it is solely up to the Buyers to conduct their due diligence; Sellers still have a duty to disclose.
In sum, a Seller of residential real estate in New Jersey must disclose all known material defects not readily observable to the Buyer. A Seller cannot avoid that duty by selling the property “as is.” If a Seller fails to disclose a material latent defect, the Buyer may be successful in an action to cancel the Contract or recover damages from the Seller.
The information contained in this post is for informational purposes only and is not intended to serve as legal advice. If you have any questions or would like to schedule a consultation, you may email us at email@example.com or call us at 201-595-0399.