As you’re hunting online for great real estate deals, you may come across a probate sale. You may have heard that probate sales, like short sales and foreclosed homes, have the potential to give you great real estate for a percentage of the price you would pay in a traditional sale.
Is that true? And what can you expect from this process? All of that and more in today’s probate sale guide.
What is a probate sale?
When people pass away without passing on all their property through a trust, the deceased person’s house and all of their assets go to probate court. The reason behind this is that they may have outstanding debt that they need to pay back before the executor of the estate divides the property among their next of kin.
You may wonder why those inheriting the house can’t just sell it the way you would sell your own home.
The answer? The inheritor can sell the house traditionally—if the deceased individual took care of their debts and split their assets into trusts before their death. On the other hand, probate court is only for the assets of those who have passed without legally dividing their property and/or reconciling their debt and need the court to step in to make sure it is done legally and correctly.
Probate Sales Process
Here’s a quick overview of how the probate process works.
After the owner of the house dies, their house (along with the rest of their assets) go to court. If the deceased has a will, the will must be notarized by a witness, or the executor (personal representative of the estate) must prove that it is valid.
Next comes dividing the property. If the deceased has outstanding debt or the estate is splitting between multiple people, the executor of the estate will need to sell the house as part of the probate process.
The executor needs to have the sale approved by the court before they can start to sell the property. Once approval has been given, the executor will need to choose a real estate agent to represent and list the house. The house is usually sold as-is, and the list price (although priced competitively) typically reflects that. The real estate agent will also show the property and handle the property negotiations.
Probate Court Process
Once an offer has been made and the executor accepts it, the court will need to confirm the sale. The real estate agent and executor of the estate will petition the court through their probate attorney to review and confirm the offer. This process usually takes 30-45 days, during which time, other interested parties can also make offers. Once the court initially approves the offer, a court date is set for the court to confirm the sale.
The executor of the estate along with the interested party or parties show up on the appointed court date. The sale of the property will then commence in the style of an auction (in the state of California). The auctioneer will open the auction with a bid of the accepted offer price plus 5%. If others bid on the property, they’ll do so in increments of 5%. If no one shows up to bid on the property, the probate property sells to the original buyer.
A 10% deposit is due at the court date. This deposit is typically non-refundable unless the original buyer is not the final court confirmed buyer.
The buyer then has the option of getting an inspection of the property. Consider this inspection carefully, since the original owner has passed and has no way of telling you if the plumbing leaks or the lights in the basement don’t work.
Once the inspection is complete and the buyer agrees, the sale is finalized.
Pros and Cons of Buying a Probate Sale
As with most real estate transactions, there are pros and cons to buying properties sold in probate court.
Pros of Probate Sale
- You could get a great deal. The sellers want to sell and the house sells as is, meaning you could get in and only have minor repairs.
- The process is fairly quick. There’s that 30-45 day wait period before the judge confirms the court date, but once you buy at the auction, most homes close within 45 days.
Cons of Probate Sale
- House is sold “as-is.” This means you could get a steal of a deal, but you also you could blindly buy a money pit.
- The 10% deposit is typically non-refundable. This means if you back out after the inspection, you may not get your money back.
How do I find a probate listing?
There are several ways of finding probate listings. If your county posts them online, you could go to their website to see a complete list of probate listings. If not, you could look through your local newspaper, call a probate real estate agent or attorney, or make friends with local estate or probate attorneys.
Final Thoughts on Probate Sale
If you are looking through probate sales for a family home, you may want to reconsider. Many homes sold through probate court need repairs. While some only need new carpeting and paint to be livable, some need much more than that.
Set on getting a house through probate court? Don’t skimp on that pre-sale inspection. You may fancy yourself to be quite a handyman, but you’ll likely want the help of a professional on this one. They’ll know exactly what to look for and will be able to save you tens of thousands if the house is in need of some major—but hidden—repairs.
If you’re looking for a great investment property, don’t just pick a probate listing because they could be cheap. Do your research to make sure you are buying a property that will not only help you get your money back but will make you money on top of it.
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