Probate sales can provide unique opportunities to buy a home for less money, but they tend to me more complicated than a traditional real estate transaction because they involve a long and drawn out process. A buyer looking to buy a house in probate will need to enlist the services of a real estate agent with a lot of probate experience because of all the bureaucratic red tape that must be jumped through.
What is a probate sale?
When homeowners are alive, they often plan what happens to their property after they pass away, also called estate planning. In real estate, property that is owned by the state after the original owner’s death is considered a probate sale. Homes in probate are facilitated by probate court and occur when the deceased person or owner did not have a will or a dedicated heir. Because of this, the probate process can take anywhere from 18 months to 36 months until the court confirms that the home is officially sold to the buyer.
The probate process
The exact probate process varies by state to state, much like foreclosures. However, a court must supervise and also approve the final sale of the home. Because of this, the process and procedure is much more complicated and drawn out than a traditional home sale or even a foreclosure auction.
- Appointment of the executor of estate – The court will appoint (if there is no will) an executor of estate, also known as an estate representative, who will assist in managing the affairs of the deceased and taking care of the sale of the home. Usually, the appointed executor is the closest living relative to the deceased owner.
- Hire an experienced real estate agent – The executor of the estate will hire a real state agent to help facilitate the sale of the property. Any real estate agent should be able to handle a probate sale, but having one with a lot of probate experience can be helpful in ensuring everything goes smoothly. Ideally, the real estate agent will be a Certified Probate Real Estate Specialist (CPRES).
- Hire an appraiser – As with any traditional home sale, an appraiser is needed to determine what the property is worth. The steps taken to appraise a home are the same as they are with any other home.
- Advertise the property – The executor of the estate’s real estate agent will advertise the home just as any other property including MLS listings, yard signs, etc. However, the only difference is that the real estate agent must make it clear that the listing is for a probate sale.
- Offers – A buyer must make an offer with a 10% deposit or more. When the seller accepts an offer price, the offer will get sent to the probate judge who makes the final decision on whether or not they should allow the offer. From there, a probate attorney will petition the court.
- Petition court – Once the buyer’s offer has been accepted by the executor of the estate, the probate attorney schedules a court date. This date is generally 30 – 45 days after the executor of estate accepts the offer. During this time, other offers are able to be received and accepted by the seller and courts.
- Confirmation by courts – Once the court date finally comes around, all of the buyers whose offers were accepted meet in court to petition the judge for approval in the format of an auction. Each buyer whose offer was accepted tries to outbid the other buyers until the judge confirms an offer.
- Deposit – The winning buyer has to have a cashiers check of 10% of their bid to the court immediately upon winning in the confirmation phase. If they don’t have sufficient funds or a cashiers check, the property goes to the next person in line.
- Contract is signed – After the cashier’s check of 10% is accepted, a contract is then signed by the executor of the estate and the buyer. No contingencies are allowed within the contract.
- Home inspection – The buyer has the right to inspect the home and if the inspection report comes back unfavorable, the buyer is allowed to back out of the purchase. However, the buyer will lose their deposit money.
- Close – After the contract is signed and the inspection is completed, the buyer will be able to close on the house. The home is sold officially 15 days after the contract is signed.
Pros of buying a probate home
The main pro of purchasing a home in probate is reduced prices. Many times a seller that inherited a property and is now the executor of the estate doesn’t want to put in the time or money that is involved in fixing up the home. This means that someone looking for a good deal on a fixer upper that has high upside potential to re-sell at a profit has opportunity in probate sales. For this reason, probate sales work out better for investors when trying to find undervalued properties.
Cons of buying a probate home
There are more drawbacks to buying a home that is in probate:
Lengthy process: As mentioned before, the process from start to finish of a probate sale can be a substantial amount of time. Sometimes they can even take years to reach completion. With so much bureaucratic red tape involved, buyers need to expect that it’s going to take awhile before a home can finally be closed on.
No contingencies are allowed: Traditional real estate transactions usually have some sort of contingency involved in the contracts whereas probate sales do not. Buyers only have two options if something comes up during the probate process or inspection; they can leave the transaction all together and lose their 10%+ deposit, or they can go through with the sale and deal with the issues later on.
Homes are sold as is: Since executors of the estate don’t usually fix up a home at all before it goes into a probate sale, the homes are sold as is. Buyers will need to be ready to put money into the property (which they usually are because probate purchasers are often investors) in order to fix any issues.