Several earthquake-related events in New Zealand have led to an unusual way of buying and selling property in those regions most affected. Faced with the stressful and costly proposition of rebuilding or repairing, many homeowners are instead opting to sell their earthquake-damaged homes on an “as is, where is” basis. Often listed at a much lower price, these homes can be tempting for first home buyers with DIY know-how. But before jumping in, take a closer look at the risks and benefits of buying “as is, where is.”
What ‘as is, where is’ means
Properties listed for sale “as is, where is” let potential buyers know that the property is being sold in its current condition, whatever that may be. “As is, where is” properties may have:
- Suffered substantial damage due to a natural disaster like an earthquake, flooding or fire.
- Been written off by the insurer.
- Been approved for repairs but no repairs have been done.
- Been uninsured at the time of the natural disaster.
- Weathertight issues or unconsented alterations.
- Been a mortgagee sale, an estate sale or neglected by the owner.
When it comes to buying an “as is, where is” property, it’s up to the buyer to do their homework, as there’s generally no legal recourse should a fault arise after the sale is completed. Buyers need to do a thorough due diligence and be fully aware of the condition of the property, even if the faults are not immediately obvious.
Benefits of buying “as is, where is”
- Depending on the extent of damage and the potential cost of repairs, buyers could secure a home at a greatly reduced price.
- The ability to fully customise the property to fit their preferences through a renovation or rebuild is another important benefit.
- Full transparency with this method of sale means what you see is what you get!
Common risks of buying “as is, where is”
- The biggest risk is of course the unknown – faults that only come to light once the rebuild or renovation begins.
- Costs can spiral out of control, negating any savings the buyer may have enjoyed with the lower sale price.
- Financing carries more risk for the lender, so getting finance can be tricky.
- Lending criteria may differ which can mean higher deposit conditions.
- Buyers could struggle to get insurance for the property even after all the repairs are completed.
What this means for buyers
If you’re considering buying an “as is, where is” property, the most important thing is to do your homework:
- Contact your insurance provider or insurance adviser to check whether the property can be insured before making an offer.
- Get independent legal advice, before signing a sale and purchase agreement.
- Meet with a mortgage adviser to discuss financing options or to find out how to access equity in your existing property to help finance an “as is, where is” property.
- Arrange a building inspection and engineer report to identify potential issues and costs.
- Thoroughly inspect the property, carefully checking high-risk areas such as chimneys, foundations and retaining walls.
- Ensure you have a contingency plan and an emergency savings fund to cover any unexpected additional costs if you do go ahead with the purchase.
Financing “as is, where is” properties
Because “as is, where is” properties are usually sold with no insurance, and may include several issues disclosed in the sale and purchase agreement, most banks are hesitant about lending for “as is, where is” mortgages.
Financing through non-bank lenders may be an option, as these lenders typically have more appetite for “as is, where is” property purchases. However, buyers are generally required to have a higher deposit and stricter lending criteria may also apply.
Due to the complexity of financing “as is, where is” properties, it makes sense to get advice from a mortgage professional who is experienced at facilitating these types of transactions.
Contact Mortgage Express today to connect with a mortgage adviser who understands the complexities of buying “as is, where is” properties and can provide tailored advice and guidance throughout the process.
