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Interested in buying a house but it’s available only through a probate sale? You’ll need to completely understand the concept before going ahead with the real estate transaction.
A first-time homebuyer may see a probate sale as an opportunity for a bargain. However, it’s more complicated than that. It does involve its share of ifs and buts.
That’s why, it’s important to know what a probate sale is, and how it works. We’ll walk you through the concept in this blog.
What is a probate property sale?
When a homeowner, who owes significant debts, dies without a will bequeathing their property to an heir or without directing its disposal, the sale of such a property is referred to as a probate sale.
It could include a house, a piece of land, or personal possessions.
If the deceased person did not have enough cash assets, their property will be sold to pay off their creditors. Depending on whether the individual made a will or not, any money left over would be dispersed to family members or other beneficiaries.
Generally, a probate court supervises the sale – dividing the proceeds of the sale among the creditors and heirs.
Keep in mind that the probate process can be time-consuming – with a lot of paperwork. Such a sale can typically take between 18 and 36 months to close.
Probate sale vs. a regular home sale
Probate property is marketed and sold just like a traditional property sale. That is to say, a real estate agent will list it and show it to potential buyers. And, anyone can put in an offer on these homes. However, the similarity ends here.
The most important difference is that a probate sale is overseen by probate courts, while a conventional real property sale is controlled by its owner.
In a probate sale, the court authorizes a real estate agent to list the property – all the while controlling the progress of the sale.
The listing price is set by the court, sometimes after a home appraisal, in consultation with the realtor and the estate’s representative.
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Any potential buyer can make an offer on the house – provided they agree to a 10% down payment, usually in the form of a cashier’s check. Some states allow the property to stay on the market while other buyers compete for it. If the original buyer is outbid, they may or may not get their deposit back.
The court then decides whether to accept an offer or not. This is usually done at a scheduled confirmation hearing. It then notifies the family members regarding the sale of the property.
The legal process is more like an auction – with multiple bidders – than a simple case of offer and acceptance. Of course, the exact process may vary depending on the state laws. For example, in California, the bidders need to exceed the accepted bid by 5% and add another $500.
Who owns a property during probate?
A probate sale is handled by the local probate court. Typically, the estate’s executor finds a real estate agent to market the property. Keep in mind that the probate court sets certain rules which the bidders and heirs (if any) must follow.
Failure to obey court guidelines might result in the sale being canceled and the buyer losing their deposit.
Can a deceased person’s property be sold before probate?
Yes, but the earnings from the sale may not be distributed in the way you expect. If you’re the executor of an estate, you can sell the property to help fund probate expenses if it wasn’t willed to a beneficiary.
Sometimes, probate isn’t required at all. For instance, if the deceased person had placed the property in a living trust during their lifetime.
Risks involved in probate sales
Buying real estate is always a risk. But, buying it through a probate sale is riskier in terms of time and the upfront deposit which may or may not be refundable. That’s why many real estate agents discourage their clients from buying a home through probate courts.
Another downside is that since the original property owner is no longer alive, you won’t be able to ask them questions about the property. And therefore will have to hire an experienced home inspector for a thorough home inspection to spot the potentially costly issues.
Furthermore, any kind of court involvement or that of a bereaved family is a recipe for delays – something not many home buyers are willing to put up with.
If you’re seriously considering a probate house, always work with a real estate attorney who specializes in probate cases. They will guide you through the complicated legal terrain – advising you on whether to proceed with the transaction or not.
Potential benefits of a probate sale
There are several reasons why property investors and real estate buyers are attracted to probate property. Such an asset is generally considered a good deal as it’s often at a lower sale price than other houses.
Secondly, buying through a probate sale may give an investor more profitable opportunities than those available in a tight real estate market.
Is it a good idea to buy probate property?
Whether you’re a real estate investor or a buyer looking for a new home, you must know how probate sales work.
When a homeowner who’s had more debt than cash savings dies, the asset or home is sold through a probate sale to satisfy the creditors. The entire probate process is overseen by a court.
Before thinking of buying a property at a probate sale, you must consider the risks involved and take careful precautions. Also, be mindful of the down payments that require ready cash and the delays.
If you’re getting a good deal at such a sale and are really keen to buy that particular piece of property, always work with an experienced attorney, a realtor, and a home inspector before closing the deal.