A probate sale in real estate occurs when a property is sold to settle a deceased person’s estate. Estate planning can avoid a probate sale, but that topic is not the focus of this blog. Instead, we will discuss whether buying a property from a probate sale is a good idea. We’ll discuss the pros and cons and how to navigate the probate sale process.
What Is a Probate Sale?
A probate sale happens when a person dies without leaving a will specifying who will inherit their property. If the deceased homeowner’s debts exceed their cash savings, the proceeds from the probate sale are used to pay off their creditors and settle any outstanding debts. Any remaining funds are then distributed to their heirs.
How should you advise clients interested in buying a property through a probate sale? Should you, as an investor real estate agent, buy such properties? Keep reading to learn the pros and cons of probate sales.
Probate Sale vs Regular Sale
A probate sale can be a long and complex process, but a savvy and patient buyer may end up with a good deal. Is it worth it? Before making any decisions, you must understand the difference between a probate sale and a regular sale.
It’s important to note that a probate court must approve the sale, and this process can extend the timeline and add complexity to the sale. Unlike a typical sale, properties are sold “as-is” – often with fewer disclosures and no repairs from the seller. Buyers must also submit a deposit of at least 10% of the home’s sale price, which can go toward a down payment at closing.
How to Navigate a Probate Sale
The probate sale process has more steps than a regular property sale. If you or your client are ready to invest in a property sold through a probate sale, here’s how to navigate the process.
1. Understand probate sales
Here are some key factors regarding probate property sales.
- Probate sales require court approval. Even after an offer is accepted, it must be presented to the probate court for confirmation.
- In many cases, the court requires that the property be sold for at least 90% of its appraised value.
- Other buyers may submit higher bids, potentially leading to a bidding war.
- Probate properties are often sold “as is,” meaning the estate will not make any repairs or offer credits for repairs. Because of this, buyers should be prepared for potential additional costs.
- Buyers in probate sales often need a 10% deposit with their offer, which can be forfeited if they back out of the purchase.
- Prospective buyers may need to make a court appearance with their agent after making an offer on the home.
Still interested in purchasing a probate property? Here are the next steps.
2. Find a probate property
Check public online records for probate filings. These records often list properties in estates being probated. Probate properties are also advertised in the legal notices section of local newspapers, as required by law. As a real estate agent, you’ll have access to your area MLS and can find probate properties for your real estate portfolio or to share with your buyer clients.
3. Get pre-approved for financing
Like any real estate purchase, you need to be able to move quickly when buying a probate property. In addition to having at least 10% for the deposit, you will need the rest of the down payment and financing unless you plan to pay for the entire purchase in cash.
4. Research the property
Conduct thorough research on the property, including its condition and fair market value. Schedule inspections to prevent surprise repairs once the deal goes through.
5. Make an offer
Submit a written offer to the estate’s executor or administrator that exceeds the court’s required minimum price.
6. Attend the court hearing
Attend the court confirmation hearing. Be prepared for possible bidding by other interested buyers. If no higher bids are made, your offer may be confirmed by the court.
7. Finalizing the sale
Once the court approves your offer, complete the necessary paperwork and provide payment to close the deal. After closing, the property title will be transferred to the buyer.
Pros & Cons of Probate Sale
Buying any property is a serious decision that should be carefully considered. However, you must take an additional pause when purchasing a probate property. Here are the benefits – as well as drawbacks of buying a property from a probate auction.
Pros of probate sale
1. Potential for a good deal
Probate properties are sometimes priced below market value, providing opportunities for buyers to get a good deal.
2. Less competition
Because probate properties sometimes involve more risk, fewer buyers may be interested.
3. Investment opportunities
Probate properties can be excellent for investors who want a fix-and-flip property or rental home.
4. Legal assurance
The probate process involves court oversight, which can ensure that the sale is legitimate and that there are no hidden title issues.
Learn more about title searches by reading What Is Title Search in Real Estate?
Cons of probate sale
There are drawbacks to buying a home from a probate sale.
1. Lengthy process
The probate sale process can take longer than a regular sale due to the need for court approvals.
2. As-Is condition
Probate properties are sold “as-is,” meaning buyers are responsible for any necessary repairs or renovations.
Higher deposit: Buyers typically need to put down a deposit when buying property (not to be confused with a down payment.) The typical deposit for a probate property is 10% of the offer.
3. Legal complexity
Navigating the probate process can be complicated.
Are you considering becoming a real estate agent to increase your real estate portfolio? Or perhaps you want to specialize in the probate property niche in your area and guide others in the process. Regardless, you need to be licensed to achieve these goals.
Related Article: Top Real Estate Niches in 2024
The real estate licensing process varies by state, but the first step in every market is the same. You must complete pre-licensing coursework in order to sit for your real estate license exam. Take your real estate classes online with Colibri Real Estate School.
Colibri Real Estate School (formerly Real Estate Express) provides online courses for prospective salespeople. Click here to learn more about the licensing process in your state.
