Can You Avoid Liability By Selling Real Estate “As Is”?
Most laypeople understand generally that when you buy something “as-is,” it comes without any warranties. In its simplest terms, this would mean that if there is anything wrong with the item, the buyer must simply accept it, and has no recourse against the seller for the defect.
In the case of real estate sales in Washington State, the picture is not quite so straightforward. In 1994, the Washington State Legislature enacted RCW Chapter 64.06, which imposed proactive disclosure obligations on sellers. These obligations cover just about every real estate sale, whether it is vacant land, commercial property, or residential property. Sellers often try put all responsibility on buyers by marketing the property as being sold “as-is” and then putting “as-is” language in the purchase and sale agreement. But this, by itself, is likely not enough to avoid liability. The seller must still comply with applicable law by disclosing known material facts bearing on property defects.
In a recent unpublished case (Chang v. Whitey’s Properties LLC), Division I of the Washington Court of Appeals considered potential seller liability in a scenario like this. In 2020, the buyer agreed to purchase waterfront property which included a rock bulkhead. The purchase and sale agreement (“PSA”) stated the property was sold “as is”. The seller provided a Form 17 disclosure statement, answering “no” to the following questions: “Has there been any settling, slippage, or sliding of the property or its improvements?” “Does any part of the property contain fill dirt, wast, or any other fill material?” “Is there any material damage to the property from fire, wind, floods, beach movements, earthquake, expansive soils, or landslides?” The Seller also answered “Don’t Know” to the question, “Are there any other existing material defects affecting the property that a prospective buyer should know about?”
Prior to closing, a dispute arose between buyer and seller, which they resolved with a settlement agreement which contained certain provisions, including: “Seller represents that it has no knowledge of any material facts or defects regarding the Property other than those previously disclosed. . . . Buyer hereby releases and discharges Seller from any and all actions, claims and demands, known or unknown, anticipated or unanticipated, of whatsoever kind or nature, including, but not limited to, those which in any way relate to, bear upon or are on account of the PSA; PROVIDED THAT this release and discharge does not apply to claims that the Seller had actual knowledge of undisclosed material facts or defects regarding the Property. This release and discharge is a general release. Buyer expressly waives and assumes the risk of any and all claims for damages which exist as of this date with respect to the PSA, but of which Buyer does not know or suspect to exist, whether through ignorance, oversight, error, negligence, or otherwise, and which, if known, would materially affect Buyer’s decision to enter into this Agreement. Buyer further agrees that this Agreement constitutes a complete compromise of matters involving disputed issues of law and fact and assumes the risk that the facts or law may be other than he believes. Buyer understands and agrees that this settlement is a compromise of disputed claims, and this Agreement is not to be construed as an admission of liability by Seller, by whom liability is expressly denied.”
Soon after the closing, the buyer began observing growing erosion sinkholes behind the builhead, and eventually retained a geotechnical expert who concluded that the bulkhead had fill soils which were not suitable for foundation support. The buyer gathered historical evidence from witnesses, who apparently corroborated a past history of sinkholes with the same bulkhead, and who allegedly observed the seller’s son performing work on the seawall prior to closing. In 2024, the buyer sued the seller for breach of contract, fraudulent concealment, intentional misrepresentation, and negligent misrepresentation. The trial court granted the seller’s summary judgment motion on two grounds: (1) that the buyer’s tort claims were barred by the 3 year statute of limitations, and (2) that the buyer’s contractual claim was not viable because the property was sold as is and there was no warranty regarding the condition of the bulkhead.
The Court of Appeals reversed on both grounds. The Court held that the buyer’s misrepresentation and fraud claims were not necessarily barred by the statute of limitations because there was a question of fact concerning when the buyer should have discovered the facts giving rise to the cause of action. As to the breach of contract claim, the Court held that the representations by the seller in the pre-closing settlement agreement (particularly that the seller “represents that it has no knowledge of any material facts or defects regarding the Property other than those previously disclosed” constituted a warranty and could properly form the basis of a breach of contract claim. Because there was a question of fact concerning what the seller knew about potential defects in the bulkhead, it was improper for the trial court to dismiss the breach of contract claim. Notably, the Court stated that an “as is” clause “can only disclaim an express warranty if it makes specific reference to it and states with particularity what is being disclaimed.” Accordingly, the PSA’s “as is” clause could not, at the summary judgment stage, be deemed to bar the breach of contract claim. The general release language in the settlement agreement also could not bar the buyer’s claims, because it did not apply to claims that the seller had actual knowledge of undisclosed material facts or defects regarding the property.
Chang highlights some important lessons. Neither an “as is” clause nor a pre-closing settlement agreement will necessarily be sufficient to preclude post-closing claims by a buyer. Sellers looking to avoid post-closing liability should be careful and forthcoming when it comes to disclosures. In practice, “as is” clauses in real estate purchase and sale agreement may carry little weight, at least by themselves. Practically speaking, they may more likely signal to a buyer that the seller is unwilling to remedy defects, but that fact does not eliminate the seller’s disclosure duties. Whether you are contemplating a real estate transaction, or whether you are facing a dispute after the fact, a real estate lawyer can help mitigate risk or evaluate potential recoupment of losses.
The lawyers at Beresford Booth have decades of experience in real estate transactions and post-closing disputes. We would be happy to assist you. Contact us at info@beresfordlaw.com or by phone at (425) 776-4100 and we would be happy to assist you.