What Is A Probate Sale In Real Estate?

Before someone passes away, ideally they leave a will outlining how their property, investments, cash and other possessions are to be distributed to their heirs or beneficiaries. If a will isn’t left behind or the terms of the will are unclear, the relatives of the deceased – or a court – must decide how to handle those assets.

The legal process of transferring or selling these assets is called probate. When handling the property of a deceased person, the process is called real estate probate, and the sale of the property is known as a probate sale. For the right buyer, buying a home through a probate sale could be a great way to save some money.

What Is A Probate Sale In Real Estate?

A probate sale occurs when a deceased homeowner hasn’t left a will determining who will get their property. If the person owed more debt than they had in cash savings, the money from the probate sale is distributed to satisfy their creditors and cover their debt. Any remaining cash goes to their heirs.

Keep in mind that probate is usually involved with or without a will in place. When the deceased has a legal will, the probate court merely helps execute the will. Our information here is primarily focused on home sales in probate without a will.

How Do Probate Home Sales Work?

A probate court oversees the probate sale and legal proceedings that follow. The probate legal requirements can vary by state. Understanding how probate sales work helps you know what to expect during the process.

Here are the steps and relevant details to the probate process:

1. Creditors are identified. All creditors are listed, including mortgage lenders, contractors, credit card companies and anyone else contractually owed money by the deceased. This happens before the property goes up for sale.
2. Administrators are appointed. The court may nominate someone from the estate to handle the property sale. That person is known as the administrator; if there was a will, they’re known as the executor (or in state law, they’re also known as a “personal representative”). They collect any money from the sale of the probate property and distribute it to the creditors, and potentially any beneficiaries or heirs.
3. Property is listed. A real estate agent will list and show the property to potential home buyers. The home’s listing price is established and offers are then fielded.
4. Offers are reviewed. The probate court approves the final bid. This process can vary – in some cases the probate sale may be treated more like an auction. A knowledgeable probate attorney can be of great help if you are unsure of your role. The sale of the property is final when it’s given court approval in probate court.

How Are Probate Sales Different From Regular Home Sales?

Houses in probate are marketed similarly to traditional real estate properties. A real estate agent works with potential buyers to get the property sold. Several differences between probate sales and regular home sales are worth keeping in mind.

Properties Are Sold As Is

One of the main differences is that properties in probate are sold as is. This means you’ll find the home in its current condition after making the purchase. Homes sold in probate may require repairs that can cost you thousands of dollars.

It’s important to get a home inspection to evaluate the condition of the property so you’re prepared for any potential renovation costs. Additionally, homes sold as is have no contingencies.

The Process May Take Longer

Another key difference is that the home buying process on a probate sale can be long and complicated. The probate court supervises every step in the process, but parties like estate administrators and heirs are involved throughout. It’s somewhat common for a probate sale to take a year or longer to complete.

How To Buy Probate Real Estate

Buying a home through a probate sale, while potentially time consuming, can provide real value in the long run. Here’s how to buy a property through probate:

1. Start Looking For Listings

If you’re interested in purchasing a house through a probate sale, the first step is to find a probate property on the market. This may involve checking listings and obituaries or consulting a real estate agent who specializes in probate sales.

2. Tour The Property

Next, you’ll view the property and consider the home’s condition. Remember to get the house thoroughly inspected to ensure you’re not stuck with any unexpected – and costly – structural repairs. Find a reliable home inspector if you’re serious about buying the house.

3. Research Comps

Before making an offer, it’s important to find comparable properties (similar homes in size and shape that are also in close proximity) in the area that have recently sold to get a sense for the value of the home. Using information from real estate comps can also help you negotiate a fair house price, especially if the court, heirs or other parties want the property to sell quickly.

4. Make An Offer

Depending on the probate process for your state, you’ll appear at auction to bid on or make an offer on the property. Typically, you’ll need to produce a deposit of at least 10% of the home’s sale price. This deposit is often a cashier’s check and can go toward a down payment once the transaction is completed at closing. If a bidding war ensues and someone offers more money, you’ll usually get your deposit back.

Once the highest bidder or home offer is determined, the court must convene an additional hearing to decide whether to accept the offer and move forward in the process. If so, the sale of the property is officially confirmed in probate court. Family members of the decedent are notified when the house is sold.

Pros And Cons Of Buying Through A Probate Sale

As we’ve discussed, buying probate real estate comes with both benefits and drawbacks for the home buyer. Here are the pros and cons to probate buying.

Pros

• Probate properties often sell at a reduced price compared to similar houses in the area.
• Probate sales can provide good opportunities for real estate investors and house flippers.
• Homes sold in probate may have less competition, as some home buyers aren’t as interested in probate sales.

Cons

• The property can require a lot of maintenance and repairs, which can be expensive for home buyers.
• The process of purchasing a home through a probate sale can take up to a year or longer.
• Court approvals, multiple bidders and other legal regulations can make the probate process more complicated than a traditional home sale.

Is Buying A Probate Home The Right Option For You?

Buying a house through probate can help you get a great deal on a new home, but it’s not the perfect option for every home buyer. There are other factors besides price that you’ll want to consider.

Your Time Frame

Before you start looking at probate sales, think about how quickly you want to get out of your current home and into a new one. A probate sale can take over a year to complete. Meanwhile, you can’t move in before closing. If you need to buy in less than a year, you’ll likely want to try other avenues.

Your Budget For Repairs

Given that probate sales are sold as is, any problems with the property or damage to the home are your responsibility to fix. Make sure you have a clear sense of how much these repairs will cost. If you need a move-in ready home or want to negotiate repairs with a seller, you may want to buy a home through a traditional home sale.

Is There A Way To Avoid Probate?

Planning ahead is the key to avoiding probate. There are many legal ways to distribute assets without probate, depending on a person’s specific situation. Some of the most common methods are listed below.

• Living trust: A living trust is a legal agreement established by the owner (known as the grantor) that gives another person (known as the trustee) the power to distribute the grantor’s assets upon the grantor’s death.
• Irrevocable trust: An irrevocable trust is similar to a living trust, except that it cannot be altered or changed by the grantor. An added benefit of an irrevocable trust is that the assets then become exempt from the grantor’s taxable estate.
• Transfer-on-death deed: Also known as a beneficiary deed, a transfer-on-death (TOD) deed gives authorization for property ownership to be transferred directly to another person at the time of the owner’s death. Different states have different laws and requirements for this process.
• Joint ownership: If more than one person has legal ownership of a property, the surviving owner usually becomes the full owner without having to go through probate.

The Bottom Line: Probate Property Can Be Worth A Look

Buying a house through a probate sale comes with its share of challenges, but it can be a great opportunity for the right home buyer. Hiring an experienced real estate agent can make a big difference when purchasing through a probate sale. Be sure you’re financially prepared for the deposit and down payment. And remember, you might have to play the waiting game if you’re serious about buying the house.

Are you ready to take the next step in the home buying journey? Start your mortgage application with us today!