If you are an active real estate buyer, or even just a curious browser, you have undoubtedly encountered a probate sale. While a probate sale generally means that the cost of the property is lower it can also mean a trickier and longer process than a normal sale. As such, it is necessary to familiarize one’s self with the system and to know what to expect.
Overview of Probate Sales:
A probate sale is used when a homeowner dies without leaving a will or without directly bequeathing the property to someone. Essentially, the state takes over and oversees the sale of the home.
While probate sales generally mean lower prices, it is important to note that there is a minimum value that must be met: the property must sell for at least 90% of its appraised value. Further, the court ensures that the home has been properly listed, marketed and appraised to guarantee that it is sold at a fair market price.
When it comes to making an offer, a 10% percent deposit is generally required. (This is due to the Court requirement of 10% at the confirmation hearing.) Similar to a normal sale, the representative of the estate will then review the offer and accept or counter it.
However, unlike a normal sale, acceptance does not mean the immediate opening of escrow. The offer is still subject to the court’s confirmation and it’s acceptance does not fully commit the seller to the buyer. It is not until after all contingencies are removed that the court may be petitioned to confirm the sale.
After confirmation from the court, the attorney must post a Notice of Sale -an ad stating their intention to sell the home and calling for anyone who thinks they are a beneficiary to come forward. In California, the law requires that a Notice of Sale is published in a newspaper from the same county as the property. The ad must run three times at least 10 days before the sale.
After the notice has been run and no beneficiary has turned up, a court date is requested. The court date could be set immediately or several months out…Then starts the waiting game.
During this waiting period, notice of the sale as the date and location of the hearing must be marketed.
When the court date arrives, the listing agent, plus any other interested party, is required to attend. At the court proceeding the property is subject to an overbid scenario wherein another buyer can come in and purchase the property contingency free on the spot. According to California real estate law, the minimum overbid amount must be 10% over the price that was accepted initially. Anyone wishing to bid, is required to bring a cashier’s check, made out to the Estate, for this amount.
If there are no bidders, the original contract is confirmed and the buyer gets the property for their original contract price.
As you can see, probate sales are not a cut and dry deal. They can turn into long drawn out affairs that can result in you spending a lot of time and resources just to have your offer outbid at the court hearing (worst case scenario!). However, working with an experienced and knowledge agent can help increase your chances of securing a home at a lower price (best case scenario!)
A probate sale can be a savvy way to secure an investment property or even a new family home. Just be prepared to patient and make sure that you have housing arrangements in the meantime!
Note: One of the main risks when it comes to probate sales is the limited disclosures requirement. In most cases the owner is deceased (it is also possible that he or she is incapacitated) and the court-appointed representative has never lived in the home, meaning that there may limited insight into the condition of the home and it’s systems. Therefore, it is essential that the buyer fully investigates the property and has the home inspected. It is also a good idea to check the public record.
*As a homeowner, make sure that you have a will clearly naming your beneficiaries to avoid the stress of you home entering the probate sale process*