1. Probate is a Process
"Probate" or "Trust" sale means the property owner has passed on. These sales have their own forms, rules, standards and requirements. A court typically has oversight to ensure that heirs or beneficiaries of the deceased are protected. This process requires help from a real estate agent with special knowledge and experience.
One unique part of this process: An offer must be accompanied by a non-refundable 10% deposit payable to the estate. In a soft market, the buyer may offer a lower deposit and ask that it be refundable if the property fails inspection or a loan cannot be obtained.
2. Court Confirmation and Overbid
Sometimes, a judge's confirmation of the sale and overbid is required. The overbid process allows other potential buyers to appear and bid above the originally accepted offer. This process is intended to protect heirs or beneficiaries, though oftentimes, the actual effect is to "chill" buyer interest, since a buyer with an accepted offer bears the risk of being outbid at a later date.
Under California's Independent Administration of Estates Act, an Estate Representative may obtain full or limited authority to do many things without court permission, including selling real property without court confirmation and overbid. This makes the sale procedure virtually identical to any other real estate sale, which can broaden the property's appeal to homebuyers and thus increase value.
3. Who is the "Seller"?
Usually a group of people who are the heirs or beneficiaries, such as the deceased's surviving children. They have an Estate Representative (usually an Administrator, Executor, or Trustee) who is responsible for, among many other things, selling the property at the optimum price. A lawyer may represent the representative to prepare forms, give proper notice to heirs and beneficiaries, deal with creditors and ensure that any real estate is properly marketed with a qualified real estate agent.
It is important to remember the special—and delicate—dynamic that may play into the hearts and minds of these sellers. Oftentimes, the home being sold is the place where they lived and grew up; or perhaps it is the home in which their beloved family member spent the last part of their life. It's not just a home sale, it's part of a major life change for the survivors, which can bring along with it anxiety and heart ache.
4. Seller Disclosures
For traditional real estate sales, the law requires sellers to provide buyers with written disclosures detailing issues which may impact the property's value. However, probate and trust property sellers are usually not required to provide such disclosures unless the Administrator, Executor or Trustee has recently lived there.
5. Condition
Quite often, a probate or trust property was the deceased's long-time home, which means there may be deferred maintenance, older finishes or major issues that need repair or replacement. This is often the reason these properties sell for less. Also, sometimes these homes sit vacant for an extended time before going to market. Systems such as appliances, plumbing and heating go unused for a long period only to break down when new buyers move in and turn them on. Buyers should always have the home inspected by a qualified home inspector (see Paragraph 6 below).
6. Inspection and Loan Contingencies
Probate and trust properties are usually sold "As-Is", without representations or warranties as to condition. It is always recommended that buyers have an inspection contingency in place to allow them to cancel the transaction and retrieve their deposit if the property needs more repairs than initially thought.
Since these are As-Is sales, it is imperative for a buyer to have the home thoroughly inspected, sometimes with several different experts. Such inspections may include roof, electrical, plumbing/sewer, foundation, termite, mold, and/or carbon monoxide. It's usually advisable to first have a general home inspector make observations, and raise any red flags that may require inspection by a specialized expert.
Of course, probate/trust sellers prefer buyers with no inspection contingency. If this is the case, then the buyer should have the property inspected before submitting an offer.
Unless you are an experienced investor (or all-cash buyer), it is extremely important to protect yourself with a loan contingency—especially in today's challenging home loan market.
7. Court Overbid Process
In situations where there is court overbid and confirmation, the following occurs:
After an offer is accepted, the court overbid is advertised with date, time and court location. Other buyers can come to court and bid above the originally agreed upon price. The minimum overbid is calculated by: 10% of the first $10,000 plus 5% of the balance of the accepted offer. Another way to calculate it: 105% of the original accepted offer, plus $500.
Subsequent bid increases are set by the court – typically set at $5000 to $10,000 intervals. Bidders must bring a cashier's check payable to the estate for 10% of the purchase price. As stated above, not all probate properties require court overbid; make sure to ask your agent before submitting your offer.
8. Pricing/Value Differences
Are probate and trust properties good value?
The court has the property appraised by a Probate Referee. A bid may not be accepted if it is not at least 90% of the appraised value.
A random sampling of Los Angeles-area properties shows that, compared to a "regular" home sale, probate and trust homes sell for approximately 10% less*, but that may be mostly due to their condition. Probate and trust properties are usually marketed like every other property with exposure on the local MLS, real estate websites, etc., so there's no "hidden market" with few buyers. The goal is to sell these properties at the optimum price, so it's usually best to advertise the property in all the traditional ways.
Auction vs. Broker Listed: A random sample comparison of MLS-listed auction vs. traditional sales* shows that an auctioned home sells for approximately 7% less. So, for buyers, seeking properties sold at auction could be a way to get a home for a better price. However, auctions are rare events in the Los Angeles area, and require the buyer to be ready to make lightning-fast decisions while others around them are bidding—not for the faint of heart.
9. Days on Market: Do probate and trust properties stay on market longer than typical home sales?
Yes, a random sampling of MLS-listed properties shows that probate/trust properties stay on market 30% longer. This may be mostly due to the court-confirmation process.
10. Expertise Counts
Whether you're ready to sell or buy a probate or trust property, the first major decision you'll make involves which real estate agent you'll choose to work with. Since there is no certification required, any real estate agent can claim to be an expert. Make sure you ask these questions before signing on with any real estate agent:
- How long have you been a real estate agent?
- How many probate/trust transactions have you handled?
- Name two forms that are unique to these transactions?
- If there is a court overbid, will you be there to represent me?
- What are the three things I need to do to prepare for court confirmation and overbid?
- Regarding contingencies, what are the principal differences between probate/trust sales and regular sales?
- May I speak with both clients and attorneys you've worked with in the past?
A good agent experienced in probate/trust sales will inspire confidence when they answer these questions. Another important aspect to gauge is the agent's ability to empathize and deal with a seller who might still be suffering the loss of a loved one and the sale of the family home.
