What is a Probate Sale?
A probate sale is a type of sale that occurs when the original homeowner passes away, and they had not created a will or identified an heir before their death. In these circumstances, the state will take over the possession of the house and employ the probate court to oversee the entire process of selling the home and distributing the proceeds. Sometimes, probate sales must occur because the homeowner dies still owing a significant amount of debt. The court will then sell the home to pay off creditors and distribute any additional funds to living family members.
The Probate Sale Process
The exact process itself can vary significantly depending on which state the sale is occurring in. No matter where the property is being sold, there are several laws that must be followed throughout the entire ordeal. Because of this, the sales process can be very lengthy—on average taking anywhere between 18 to 36 months. Below we will cover the three main stages of the sales process and highlight what occurs in each stage.
Step 1: Before the Sale
Depending on whether or not the deceased has left a will, determines who will become appointed as the official executor. The executor is the individual who is put in charge of the sale and represents the deceased. Typically, this is a relative or other trusted individual. Once an appropriate party has been identified, a court hearing will need to take place to approve them. Only then will the probate process begin. Furthermore, the executor will be under the legal obligation to officially notify all creditors, beneficiaries, and heirs (if applicable).
At this stage, the executor will also need to hire a real estate agent and an appraiser. It is assumed that both individuals are sufficiently skilled for the job. The appraisal process will take place in the same way that it would with a traditional sale. The appraiser will be responsible for defining the exact value of the home. As for the real estate agent, it is preferred that they have sufficient experience in selling probate homes. The realtor will market the home just like they would with any other property. However, they must explicitly state that the property is a probate sale.
Step 2: Making the Sale
To place an offer on a probate home, a buyer must be willing to pay a minimum of a 10% deposit. If the seller accepts this offer, it will get passed on to the probate judge, who will ultimately decide on the appropriateness of the amount. If the judge agrees with and accepts the offer, there will be a petition for the court. This court date is typically set a month or so in advance. During this waiting period, the seller can take on additional offers as well. When the court date finally rolls around, the highest offer will be awarded the sale.
Step 3: Closing the Deal
To finalize the sale, the prospective buyer will need to immediately provide the court a cashier’s check with the deposit amount decided upon during the hearing. Then, both the executor and the buyer will sign the contract. The official sale date will take place 15 days after the contract is signed. If the buyer has a change of heart (usually caused by a poor result on the home inspection), they will still be able to re-sale the home. However, there is one caveat; they will not be able to receive back their deposit.
But wait! The process isn’t quite finished yet. After the sale has been finalized, the executor will have a few more legal matters to take care of. The seller must ensure that they have paid all outstanding paychecks, bills, debts, etc. Once that has been taken care of, the remaining assets can finally be distributed. As mentioned above, if there is money left over, the rightful heirs would then receive the remaining balance.
The Pros and Cons of Buying a Probate Home
Now that we’ve answered the question: “what is a probate sale?” Hopefully, you have a better idea of the process. The rest of the article will be dedicated to discussing a handful of pros and cons of buying a probate home.
Buying a Probate Home Pros
The biggest advantage of buying a probate home is the pricing. Probate properties can typically be purchased for a reduced price, saving you tens of thousands of dollars or more. However, to purchase a house that's in probate and enjoy these savings, you'll need to follow specific rules and procedures.
Great Investment Opportunity
Due to their attractive pricing, probate sales can be a great option for investors. There's a lot of opportunity for probate homes to be resold for a profit, making them a great investment as long as you don't mind the more lengthy sales process of buying a house that's in probate.
Buying a Probate Home Cons
Lengthy Sales Process
The biggest disadvantage of buying a probate home is the length sales process. It can easily take 6 to 12 months to purchase a house that's in probate, and you'll need to make a 10% deposit up-front. During this time the court needs to confirm a number of things including the fact that the estate does not owe any back taxes.
Additional Fees and Requirements
Probate sales have more fees and requirements than traditional home sales. Purchase contracts for probate homes do not allow contingencies and a non-refundable 10% deposit is required to begin the process of buying a probate home. As the process is so complex, there are typically additional legal and appraisal fees associated with probate houses.
Probate Sale Bottom Line
A probate sale can be a pretty big bargain if you are willing to spend the extra time going through the bureaucratic hurdles. Whether you're considering buying a house under probate or need to sell a house in probate, you'll need to be patient. Also, be sure that you assemble a highly qualified team right away. Working with an experienced realtor or attorney that can guide you through the process is critical.
If you are a realtor and are interested in getting involved with probate sales but don’t have the experience, you may be able to get certified as a Certified Probate Real Estate Specialist. Finally, no matter your role in the process, be sure to double-check your state’s exact requirements and identify any quirks in state laws. It could potentially save you a great deal of time.