Court-confirmed real estate probate sales can be a way for serious buyers and investors to pick up property for a decent price. But they are not without risk and their own set of bureaucratic rules that require patience and due diligence. Learn how to navigate probate sales ahead of time to succeed.
Updated August 14th, 2019
Investors and home buyers who have a vested interest in finding good deals on property look at court-confirmed sales in real estate as additional opportunities next to short-sales and foreclosures.
But probate sales come with their own set of requirements and are not without risk. If you have patience and are willing to jump through a few extra hoops, court-confirmed real estate sales can be lucrative.
To get the most out of probate sales, you’re better working with an expert realtor who has experience in probate by your side to guide you — or you could lose money if you aren’t careful.
Let’s walk through the general steps of a probate sale so you can see why.
What does it mean if a property is in probate?
If a property’s in probate, the owner of the property has died and the executor of the estate, if there’s a will, or the administrator appointed by the courts if there isn’t a will, is in the process of sorting out the decedent’s estate — their property, money, and debts.
If a property isn’t in a living will or or protected from probate by some other means, it will go through probate until the people involved — executor, administrator, probate judge, etc. — figure out how to pay off a deceased person’s debts and legally distribute his or her assets to any beneficiaries.
Why would a house go to probate?
A house goes to probate if its owner dies without a will, or if the house is in the owner’s name only and it must be transferred to a beneficiary’s name listed in a will. Real estate, especially commercial property, can also go through probate if there are tenants-in-common — multiple investors who went in on a property together. A house can also go to probate if it needs to be liquidated to distribute an estate amongst the heirs and/or pay off the decedent’s debts.
Probate is necessary when someone dies even if they left a will. If the person who died owned a house, it would go to probate unless its previous owner took steps to avoid probate. Probate clarifies title issues for the property in an estate, distributes property and legally transfers the title of that property. Until a house is probated, title has not been confirmed and cannot be legally transferred. Probate also protects an estate from possible challenges to legal heirs of a will. Just because a house “is in probate,” it doesn’t mean it will necessarily be sold.
How does a probate sale work?
If the executor or administrator needs to sell a piece of real estate in order to properly distribute the assets of an estate, they will hire a real estate agent familiar with probate law to handle listing the house and marketing it. Potential buyers who make an offer must provide a 10% deposit of the listing price at the time of the offer, but this doesn’t mean they will get the house for that price.
Most probates end up in an auction-type situation on a final court date where the buyer who made the first offer on the property may end up bidding against other potential buyers. If they don’t get the winning bid, they get their deposit back.
Hiring an Agent
As in any specialty, the best real estate agents for probate sales are those agents who handle them regularly and know what they are doing. Probate sales are different than traditional real estate sales. Not all real estate agents are well-rehearsed in probate sales.
The agent hired by the judge or executor/administrator will complete a CMA, an appraisal, and list the property in the Multi Listing Service (MLS). The listing agent is required to disclose that the house is a probate sale. If you are seriously bidding on a property in probate, it’s in your best interest to have your own buyer agent who knows their way around probate law to help avoid the risks involved and give you leverage during the bidding process.
Making an Offer
A potential buyer who wants to make an offer has to put 10% of his bid down at the time of the offer, usually with cashier’s check. The executor/administrator/judge can approve or reject the offer. This 10% deposit could be held for quite a long time until the court date confirms the winning bidder. After the first offer is made on the property, the published list price of the property is changed to reflect the amount of the offer. And then the buyer must wait.
Wait for the Court Approval
After the first buyer’s offer is submitted and approved, a court date is set somewhere between 30 - 45 days later. Note that the property will continue to be marketed during this time. Other offers are also accepted but each must be accompanied by a 10% deposit from each bidder. Note that some states have can even raise on the offer between bids, such as California. Make sure you check the probate laws of your state if you are bidding on a house in probate.
Getting Court Confirmation
Upon the court date, all potential buyers whose offers were accepted by the court, show up at court. An auction-style format ensues and buyers have the opportunity to try and outbid each other. If you get outbid, you get your 10% deposit back. Only the winner pays that. If you win you need to be prepared ahead of time with funds. This is important to avoid losing your deposit.
If you’re bidding at a probate sale, you need to bring a cashier’s check in the amount of 10% of the highest bid that you’re willing to make on a property, so planning ahead is crucial. If you win the bid, you win the property.
However, if you are waiting on funding and you fail to close, you will lose that 10% deposit. The close of escrow is 10 days after you receive the signed Order Confirming Sale which is sent out from the court after the court date. While you may be looking at a wait of around 3-4 weeks to escrow, make sure you have funding lined up before bidding at all to avoid risk.
Probate sales are “as is.” Don’t expect the property to have been maintained. If you’re serious about making an offer, you should have the house inspected first. Yes, you might be out the cost of the inspection, but if you’re the only bidder and you back out of the sale by inspecting later and finding out it’s a money sink, you’ll lose that 10% deposit.
Do you really want to risk thousands of dollars and waste your time following a lengthy and complicated probate sale on a house that you later discover has serious foundation problems? Perform an inspection as soon as you are legally possible.
Key Takeaways: Get Help from an Expert
Executors/administrators/judges are required to try to get as many competitive offers as possible. Be prepared to compete with other bidders. Make sure you do your due diligence and have a timely inspection completed. Get your funding lined up way ahead of time to avoid losing thousands of dollars. If you really want a probate property, do your research and get an expert probate agent in your local area to walk you through it correctly.
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Can a house in probate be sold?
A house in probate can be sold by the executor, or the court-appointed administrator of the estate, once the notice of probate is published. But the executor must have the probate court’s approval to sell the property and make sure that all the beneficiaries, if any, are informed and in agreement with the sale of the home. The executor will be working with an experienced probate realtor and probate attorney.
What is a probate sale without court confirmation?
If a probate property is part of a trust sale, or if the executor or administrator of the estate has full independent powers, they can list the property for sale without court confirmation. If a buyer’s offer is accepted, then, the estate’s attorney will need to send a Notice of Proposed Action describing the terms of the proposed sale to all the beneficiaries. If the beneficiaries do not object to the sale within 15 days, the sale can be completed without any court hearing.
How long does a probate sale take?
A probate sale can last anywhere from three months to several years depending on the complexities of the estate, state laws, and any legal complications involved with title transfers, beneficiaries, and challenges to the probate sale. Probate sales take time and patience. They are not the place to try to pick up a piece of property quickly.
Can you live in a house during probate?
You can live in a house during probate but keep in mind that the house now belongs to the estate. The estate acts as the landlord and you could be asked by the executor or administrator to pay rent, or at the very least, maintain the household expenses including the homeowner’s insurance policy. If you’re a beneficiary, be aware that rent and/or other expenses paid by the estate for the house while you live in it could be deducted from your portion of the proceeds of the house sale before you get your inheritance.
How do you avoid probate court?
There are several things you can do to avoid probate court. You can create a revocable living trust and put all of your assets in the name of your trust. The trust then becomes the record owner of your assets instead of you. Any assets held by the trust will go directly to the beneficiaries without going through probate.
You can hold real estate jointly — both in your name and another person’s. Depending on your state you may also be able to use a beneficiary deed or a transfer-on-death (TOD) deed to keep property out of probate. State laws vary on this so make sure to check the laws of your state to see what’s available for you. You can also designate beneficiaries on assets held in an IRA, 401(k), life insurance policies, and bank accounts to keep those assets out of probate, too.
Buying a house in a court-confirmed probate sale takes due diligence and commitment. You need to stay on top of your game and engage the services of an expert probate realtor who knows your local market well. Find an expert buyer agent in your area to learn more about probate sales.