Probate Sales: What You Need to Know
In 1789, Benjamin Franklin famously wrote, “in this world, nothing can be said to be certain, except death and taxes.” In between those two certainties, probate sales come into play.
Probate sales are sensitive and complex. They involve local and state court systems, potential bidding wars, and can take longer than a traditional home sale. Still, in many ways, a probate property is like any other real estate transaction. If you’re considering purchasing a probate property, here’s what you should know.
What is a probate sale?
Probate sales take place following the death of a property owner. Homeowners often include in a will what should happen to their property after they die—this is called estate planning. However, if the owner dies and the property isn’t bequeathed to anyone in a will, the state steps in to administer the property’s sale.
Types of Probate Sales
Somewhat of a myth surrounding probate sales is that they only happen when a property owner dies and has no will. However, even properties with a will are often subject to a probate sale. In fact, a property can truly only avoid probate in the following circumstances:
- When a living trust has been established (a living trust is set up by a person before they die so assets like property can automatically transfer to a chosen beneficiary after death)
- If one spouse dies and the other takes ownership of the house through joint tenancy law
- If the person who died set up a beneficiary deed to transfer the deed upon death (similar to a living trust)
That means, for example, if a parent or aunt or uncle dies and you’re the heir (not the spouse), and they did not have a living trust or beneficiary deed, you would become the executor of the estate, and the property is legally required to go through a probate sale. Whether the property was willed to someone or not, probate sales are often a reality in the event of a property owner’s death.
How a Probate Sale Works
In terms of other homebuying processes, a probate sale is similar in many ways. You’ll still view the home in person, work with a Realtor, and decide if you want to make an offer. On the listing side, the executor will hire a listing agent like any other seller would, and market the home just the same as any other.
The differences are a buyer may want to do an inspection in advance before even making an offer (more on that later) and if a buyer does decide to make an offer, they’ll need to provide a 10 percent deposit right off the bat. Instead of a closing, the home will go through probate court confirmation (more on that later, too) before a buyer gets the keys.
“Most licensed Realtors are a wellspring of information about all things real estate, and probate sales are no exception.”
How to Find a Probate Property
Ready to do a little sleuthing? While it might be unclear if a property is a probate sale from the MLS, remember that wills are public documents and are easily accessible. You can also visit your local probate court, which will have a list of recently filed cases and the individual executor for each case. You can also talk to your real estate agent to let them know you’re seeking a probate property—most licensed Realtors are a wellspring of information about all things real estate, and probate sales are no exception.
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The Role of the Courts
One of the main things that sets a probate sale apart from other real estate transactions is the involvement of probate courts. Remember, this isn’t just a formality or a case-by-case event: All probate sales are legally required to involve court oversight. For sellers, they’ll be required to file all sorts of paperwork on time with the courts to keep a probate sale moving. For buyers, there’s always a court-mandated waiting period.
Here’s how it works: If you put in an offer and the 10 percent deposit for a probate sale, the probate court will determine a sale date (similar to setting a closing date). Once that date is determined, the buyer and executor must wait 30 to 45 days so that the property can be advertised and marketed with the new accepted price—remember, the state is always trying to get the best deal on a probate sale property.
“A probate sale generally takes much longer than the typical home sale.”
This depends state by state, but in California, let’s say you put in an offer for $500,000 on a probate sale, it was accepted, and the sale date was set. From there, the court could advertise a new probate price of 5 percent plus $500, for a total of $525,500, to be available for purchase on the sale date.
When the sale date rolls around, you’d show up to claim the home at your accepted offer of $500,000. Any other interested parties, however, could show up and bid on the home auction-style starting at $525,500—they’ll also need to have the 10 percent deposit available immediately. If no one shows up, the home is yours for the original offer price.
Risks of a Probate Property
While bidding wars can happen for any type of property, they usually happen at the beginning of the process rather than the end. In a probate sale, this is reversed — which is more than a little stressful if a serious buyer swoops in at the last minute willing to pay premium price. What’s more, there’s no direct line of information regarding the home’s history in terms of repairs, flooding, and other issues. That’s why it’s incredibly important to perform a home inspection.
Typically, you’ll want to do this before you even make an offer: It’s an added cost to pay for an inspection on a home you might not end up buying, but it’s a lot cheaper than the price of a whole home rife with problems. On the flip side, an inspection might reveal the house is in great shape, and you can feel confident moving forward in the sale.
“There are lots of emotions in probate sales.”
While the minimum waiting period is 30-45 days, remember—that’s the minimum. Like short sales, probate sales can take months of waiting — and often even more than a year.
“A probate sale generally takes between 18 to 36 months to reach completion, which is much longer than the typical home sale,” says David Reischer, Esq., a real estate attorney and CEO of LegalAdvice.com. “Consequently, most real estate agents don’t handle probate listings because the transaction simply takes too long to close.”
There are other cons to consider beyond an unpredictable time frame, says Shawn Breyer, owner of Breyer Home Buyers. “Usually, these types of houses are very outdated because the elderly people who settled down in them weren’t renovating to keep them modern.”
Moreover, he says, family matters can make for a major headache in probate sales.
“There are lots of emotions among siblings and relatives in probate sales, including figuring out who gets to keep what from the estate. Every sibling will have to agree on a price to sell the property, and they often have different ideas on what the property is worth to them individually,” Breyer says, noting he’s even seen some siblings refuse to sign an agreement in order to spite the others involved.
Benefits of a Probate Property
The main benefit of a probate property is price. When an executor wants to sell quickly, probate sales can be a real bargain well below traditional market value. Remember, though, there’s an opportunity for the court to raise the price during the mandatory waiting period before the sale date. And there’s also the possibility you might not get a bargain at all, says SparkRental co-founder and Realtor Denise Supplee.
“Sometimes, a home is paid off, and the family is more than willing to wait for a good price,” Supplee says.
In short, probate sales are complicated and probably not right for all types of buyers, particularly those who need to move into a new home quickly. Always arm yourself with a knowledgeable real estate agent to help guide you through the process of a probate sale property.