- “You’re buying … as-is today.”
Here we explore the effect of the “as-is” clause.
First, some terminology for our discussion today:
- Patent: Open, obvious, viewable and/or easily discoverable.
- Latent: Not patent. Hidden, concealed and/or not easily discoverable.
- Defect: A feature or characteristic a buyer would typically characterize as adversely affecting value.
- Material: Important. Anything that a typical buyer would feel is relevant.
Next, the controlling authority for auctioneers lies largely in the judicial system in the United States. Nearly every state has had at least one material “as-is” case, and yet there is a general hesitancy to define exactly what an “as-is” status does in regard to disclosure.
However, there are some trends developing in regard to the effect of an “as-is” clause.
- Most states have concluded that an “as-is” clause does not relieve the auctioneer from disclosing latent material defects about what is being sold.
- Most states have concluded that an “as-is” clause does relieve the auctioneer from disclosing patent material defects about what is being sold.
- Most states have concluded that an “as-is” clause does not relieve the auctioneer from disclosing any potentially hazardous or harmful issues (patent or latent) about what is being sold.
- Most states have concluded that an “as-is” clause does relieve the auctioneer from liability if the buyer did not rely on the representations or even the nondisclosure.
To illustrate these four axioms:
- Let’s say Auctioneer David J. Walters is selling a 2007 Mack CXP613 Truck Tractor “as-is” in his auction Saturday. The truck runs and drives good, but has a mileage discrepancy due to a repair issue with the odometer.
- The truck’s tires are fairly worn and there is a small dent on the driver’s side fender. As well, this truck was partially submerged in water for a brief time while parked near the 2009 Red River flood.
- Lastly, Mack had issued a recall for 2007-2008 CXP models due to two turn signal module malfunctions. The recall notice is posted on the inside driver’s door indicating only the first recall has been addressed to date.
Assuming that our auction would fall under the typical state’s laws in the United States with corresponding supporting case law, the following would be important issues for Mr. Walters:
- Mr. Walters would have to disclose the mileage discrepancy as this would be considered a latent issue.
- Mr. Walters would not have to disclose the tire wear nor the dent on the fender as these would be considered patent issues.
- Mr. Walters would have to disclose the 2009 Red River flood incident due to possible mold hazards to the buyer.
- Mr. Walters would not be liable to the buyer of this truck if the buyer did not investigate the extent of the remaining turn signal recall issue and pursued damages.
Additionally, there is the issue of what can or can’t be disclosed. Generally, the law suggest that only things which are known (not unknown) can be disclosed. Yet, there is an increasingly prevalent doctrine which suggests the concept of “should have known.”
For example, Mr. Walters might be held liable if he didn’t disclose the mileage discrepancy because he didn’t know about it. It would not be surprising if a court said that Mr. Walters should have known about this discrepancy and it should have been disclosed.
The counter-argument to the should have known doctrine questions why the auctioneer should know something that the buyer isn’t equally required to know. However, courts routinely hold professionals, such as auctioneers, to different standards than they do the general public.
Finally, what about non-material issues? Must Mr. Walters disclose that the driver’s seat makes a very slight noise when swiveled to the farthest open position?
Despite it possibly being latent, is it material? What is important here is that Mr. Walters (and all auctioneers) put themselves in the shoes of the “typical buyer,” and look from that standpoint as to what is material, and what is not.
What is the effect of the “as-is” clause? Wide-ranging and significant.
Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Auctions and Goodwill Columbus Car Auction. His Facebook page is: www.facebook.com/mbauctioneer. He is Executive Director of The Ohio Auction School.