6 Things to Know about Buying or Selling a Property through Probate
If you’re a buyer on the hunt for a home and you’ve done your research you’ve probably heard about homes being sold in probate. In case you don’t know, probate is the process where a will is validated or property is disposed of according to the local probate laws after the owner passes away. Or, if you’ve been named an Administrator or Executor of an estate, and there is a family home or investment property being held by the estate, chances are you will have to sell this property during the process of probate.
What does this process entail? Here are 5 things you need to know about probate sales.
1) Some probate sales must be confirmed by a probate court while others do not. When court confirmation is not required, the sale proceeds like a regular property sale. When court confirmation is required, the process becomes more involved. Not only does the sale have to be confirmed by a judge in an open court hearing, there is an opportunity for anyone with interest in the property to come into court and purchase the property. This process is called overbidding and it works like an auction, in court, with the probate judge acting as auctioneer—though not with fast talking!
2) It’s better to be the accepted offer being confirmed than to be the bidder in court. This is primarily because you may have the chance to conduct your inspections before you remove your contingencies and become locked in. Overbidders in court have no such luxury. They are buying non-contingent meaning if they win and cannot close the transaction for whatever reason their deposit is forfeit!
3) Oh and about that deposit. In regular transactions the earnest money deposit is 3% of the purchase price while in a probate the deposit is 10% of the purchase price!
4) If you do end up overbidding in court, the minimum overbid amount is 5% over the accepted offer price plus $1,000. So if the accepted offer is $500,000 then the minimum overbid is $526,000 ($500,000 + $25,000 + $1,000). This is another reason why it’s good to be the accepted offer. If no one shows up to overbid it’s yours. If someone or several people show up, the price can quickly go higher.
5) Overbidders have to be qualified by the court meaning they must show up with a cashiers check for 10% of the minimum overbid so the court and probate attorney knows you can afford to bid. They should also have additional cashiers checks to increase their bid if the price starts to increase.
6) If you’re an Administrator/Executor, the goal should be to get Full Authority under the Independent Administration of Estates Act (IAEA) from the court when acting on behalf of the estate. This will allow you as the Personal Representative to act without having to go through several cumbersome court-mandated steps. One of these steps is for a court appointed referee to order an appraisal which establishes the value of the property. Any offers have to be within 90% of that value. Under the IAEA, with full authority, the real estate agent hired by the Administrator/Executor will provide the value based on market comparables of similar properties.
Lastly it’s important to realize that if you’re attempting to buy a probate you should have some experience with fixing up properties and taking some risk because most properties sold in probate are in some state of disrepair. If you’re a Personal Representative, it’s crucial to hire a real estate agent that has experience with this process because most agents have never been involved with a probate sale.
This is why it’s vitally important to have someone representing you in either instance who knows the process and can guide you through it.