What is a probate sale in real estate?

 

What is a probate sale in real estate?

Whether you’re looking for the perfect home or an investment opportunity, finding the ideal property in the right place at the right time is a challenge. 

You may come across homes in foreclosure or probate with lower pricing than comparable property—either noted as such or with an “as is” designation.

With probate sales, there are drawbacks that weigh against the savings: time, uncertainty, and higher risk to the buyer. However, with the right probate REALTOR® on your team, you can end up with a property surpassing your expectations. In this guide, we’ll explain the ins and outs of the probate process.

What is a probate sale? 

When someone who has individually owned assets dies, their estate generally goes through probate. This is a legal process that requires oversight by a probate court to ensure that the deceased’s debts are paid and the remaining assets are distributed properly to heirs. 

What does probate mean in real estate, and what is a probate sale? When assets include a home or other real estate, its sale may be mandated in order to: 

• Cover outstanding debts or taxes if the estate doesn’t include cash to pay them
• Distribute assets between multiple heirs
• Extract the value of a share owned by the decedent in a joint property

The key thing to remember in understanding what is probate in real estate is that the ultimate decision-maker is the probate court. Every key determination or contract that you’d otherwise obtain from an individual seller will take place at a scheduled court hearing for a probate sale.

How is real estate sold under probate?

The decision to put a property up for sale is made by the executor or court-appointed administrator. Property is listed through a selling agent alongside other listings to browse online, though “probate” may or may not appear in the notes.

Interested parties can request to view the home, and if desired, submit an offer to the listing agent. At this point, the buying journey is significantly different than making an offer on a standard property. 

Step #1: You submit an offer

An offer on a probate property differs slightly from a standard property offer. It requires: 

• A 10% deposit, only refundable under very limited terms
• Acceptance of the as-is terms of the sale
• Exclusion of all contingencies (financing, undisclosed flaws, etc.)

Step #2: The executor reviews the offer

The executor or administrator reviews the offer and may present a counter-offer for further negotiation. Once a sale price is agreed upon, they can grant provisional acceptance of your original or adjusted offer. 

As the executor isn’t a legal owner, their role is to recommend the offer to the probate court. 

Step #3: The court hearing is scheduled

To take the next step toward a sale, the executor or administrator submits the offer via their probate attorney. The attorney schedules a date for an offer confirmation hearing. 

Waiting for a court date can take 30 to 45 days or longer in some circumstances. 

During this time, the house remains listed for sale and viewing for other potential buyers. 

Step #4: Inspection and appraisal

Once you have a provisional acceptance from the executor, you can request permission for an inspection and appraisal. This is at the mercy of the executor, however—they aren’t required to provide access to you to the property during this time.

You cannot retract the offer at this stage without losing your deposit. However, the inspection and appraisal results will help you nail down the exact value of the property. 

Step #5: The offer confirmation hearing 

When the offer confirmation hearing takes place, the court is not solely deciding whether to accept your offer. Other potential buyers can freely attend the hearing to place competing offers. Your offer acts as the opening bid at an auction rather than a commitment to sell to you.

You do, however, have the opportunity to bid against others with an increase to your original offer during the hearing. If you lose the sale to a higher offer, you will be refunded your 10% deposit. 

Before signing a contract of sale, the court will require you to prove your financial ability to complete the purchase. 

Step #6: The heirs are notified

If the offer confirmation hearing results in a signed contract, the court will mail out a Notice of Proposed Action to the heirs of the estate that provides details of the sale including the price. 

• They will have a short window of time (15 days) to object to the sale, which would then result in further court hearings and a delay to the sale until the matter is resolved. 

• While this possibility of unhappy heirs contesting the sale can result in lengthy delays, most probate sales proceed to closing within 30 to 45 days of the hearing. 

Step #7: Closing on the property

Once the window for objections has passed, the closing can be scheduled and completed as with any other transaction. The buyer transfers funds to the estate and becomes the new property owner, while the probate court disburses the funds to their heirs.

Pros of buying real estate in probate

If you’re not depending on the usual process and timeline of a real estate transaction, there are a few compelling reasons to move ahead with buying a probate property. 

Pro #1: Price

Undoubtedly, the bait to compel buyers to make an offer on property under probate is a low price. Probate properties are often sold under market value, as they have a smaller pool of potential buyers—those who can accept the timeline and uncertainty of the process.

Pro #2: Lack of seller contingencies

The majority of private home transactions involve a resident seller. In these situations, you may be playing a game of chess in which each party needs a square to stand on. The seller needs a new place to land before leaving their current home, and your closing date can be delayed if: 

• They take longer than expected to find a new home
• Unexpected changes to job or family circumstances arise
• Their financing of a new home falls through

Rather than dealing with a seller who has an individual stake in a property, the decision-makers in a probate sale have no personal interest or investment that can put the timing or sale at risk. 

Cons of buying real estate in probate

Unsurprisingly, the cons list is longer than the list of pros. Probate sales are more complex, more time-consuming, and with more points of risk than standard real estate transactions. 

Con #1: The risk of an as-is sale

There are no “lemon laws” that trump the non-returnable nature of a buyer-beware sale. Probate property is sold as-is, with no contingencies or warranties. 

Not even a skilled contractor can spot all potential concerns with a basic home viewing. However, that’s the limit to the information you have before putting down thousands of deposit dollars. While you can request an inspection after the executor provisionally accepts your offer: 

• The executor can choose to deny access for a property inspection
• Regardless of what a pre-sale inspection uncovers, your deposit is nonrefundable
• If the process drags on longer than expected, further repair issues may arise

You could end up with a property that costs you significantly more than planned. 

Con #2: Probate sale deposits

Ten percent of the property price tag may be a large stack of bills to produce, especially compared to the 1% to 5% amount common for earnest money in a traditional sale. 

Plus, the only way to get that deposit back is if someone shows up at the offer confirmation hearing and outbids you—if you opt to bow out of the sale or your financing falls through, you forfeit the deposit. 

Con #3: The waiting game

If you’re buying a new home, you know the process is already fraught with snags that may delay how soon you start feathering a new nest. You could: 

• Lose out on a bidding war
• Take more time than planned to find the ideal property for your needs
• Face a delayed or canceled closing due to financing or other complications

On top of these common variables, with a probate sale, you’re also waiting for: 

• The offer confirmation hearing at probate court, often 30 to 45 days or more
• A 15-day window allowing for heirs to object to the sale
• Further court dates, hearings, and delays if objections are entered (months or years)

Additionally, if the house is being marketed before probate is granted, it can add weeks or months to the timeline. Be sure to confirm whether probate has been granted or just applied for; less experienced real estate agents may not understand the difference.

All told, probate sales can end up taking over a year to close in some cases. Not many buyers have the flexibility to wait out the uncertain timeline.

Con #4: Competition

As mentioned in the process steps above, the court hearing to accept your offer is actually a hearing to accept the highest offer submitted in real time. Depending on the current real estate market and the desirability of the property, you may be walking into a bidding war. 

What happens to the original buyer’s 10% deposit? 

Providing an up-front 10% deposit is one of the challenges to bidding on a property under probate. The journey that deposit takes is as follows:

1. Along with their written offer, the buyer remits a deposit of 10% of their proposed sale price to the executor.

2. If the executor proposes a counter-offer that leads to negotiations, the final accepted offer dictates the accepted sale price. This may entail an additional payment from the buyer to fulfill the full 10% of the negotiated sale price.

3. The 10% deposit is held by the executor throughout the wait time before a successful offer confirmation hearing and closing.

There are four possible outcomes of the offer confirmation hearing at probate court, and these determine the handling of the deposit as follows: 

1. The buyer’s offer stands (or the buyer outbids others) and the buyer goes through with the sale. In this case, the deposit is applied to the sale.

2. The buyer is outbid by someone else at the hearing. If this happens, the deposit is refunded to the buyer. 

3. The buyer is not outbid but decides not to go through with the sale either at the hearing or before closing. If the buyer abandons the property purchase, they lose their 10% deposit. The estate keeps the deposit. 

4. The buyer does not attend the hearing. The judge will only approve an offer if the buyer is present; if a buyer skips the hearing, their offer is closed and they lose their 10% deposit. The estate keeps this money.

Be sure to consider that deposit in real money terms (i.e., $50,000 for a $500,000 property) and understand that it is tied up in a process that could potentially take years to resolve. Plus, if your circumstances change by the time escrow closes and you can’t proceed with the buy, you’ll forfeit that money in full.

How can you succeed at buying probate real estate? 

Navigating the process of probate sales requires experience, skills, and resources. You’ll need: 

• A talented probate REALTOR®
• A probate attorney to represent you in court
• Cash on hand for 10% of the sale price in addition to a down payment and closing costs

You could think of how a probate REALTOR® relates to a general real estate agent as similar to how an oral surgeon relates to a dentist. Both start out covering the same ground, but the more specialized role requires additional training, experience, and access to specialized arenas. 

You’re looking for a professional who has: 

• Significant real estate experience in the counties you’re targeting
• Specific probate sale experience
• Connections to local probate attorneys and the court system
• The ability to guide you through the process and identify red flags
• A Certified Probate Real Estate Specialist (CPRES) credential

Establishing a relationship with the right probate REALTOR® is key—and this is not a time to rely on friend or family recommendations of general listing agents. Reach out to the Probate Real Estate Division of Berkshire Hathaway HomeServices California Properties today. We’re here to help you navigate and succeed with these specialized sales.

Sources: U.S. News