There are many good reasons why people hate going through probate court. It’s expensive, time-consuming and valuable assets can remain tied up for years. Parties must also contend with inflexible deadlines and navigate the legal system maze of steps and requirements. Despite these disadvantages, selling a home through probate is manageable and can be less expensive and time-consuming than you might think at first. The key is understanding the process involved and how it differs from a regular real estate investing sale.
Many estates want to sell real estate quickly, often to satisfy creditors or provide needed funds to heirs. This presents an opportunity for real estate investors. Investors can find many below market price properties by buying an investment property through a probate sale. Whether looking for a fix-and-flip investment or a rental, probate sales offer some of the best deals. Below we take a look at how the process of selling a home in probate works.
The 5 things You Need to Know About Probate for Real Estate Investing
New real estate investors may be intimidated by the probate process. Though it may seem confusing at first, the process is fairly straightforward and logical. Real estate investing requires knowing these 5 things about probate:
The Court Oversees the Sale
When a house is in probate, the seller must receive the court’s approval of a sale. The court’s purview includes the entire sales process, from marketing to closing. Understanding the court’s requirements is essential to gaining approval. Not fully understanding the requirements at each step can kill a deal.
Numerous Parties Are Involved In a Probate Sale
A probate sale requires the involvement of additional parties. Those involved in a probate sale include the following:
- Court personnel
- Executor or administrator of the estate
- The estate’s attorney
- Seller’s real estate agent
- Buyer’s agent
All of these parties must fulfill the requirements of the court for a judge to approve the sale. Disclosures and contracts unique to probate real estate sales are required.
A Real Estate Agent With Probate Experience Is Necessary
Because probate sales have a language of their own, require specialized disclosures and hinge on the fulfillment of numerous court requirements, a real estate agent who knows the probate process is essential.
Knowing the Steps of a Typical Probate Real Estate Sale Key to Planning
Planning is a key part of real estate investing success. Investors need to know when sales can be made and the timeframes involved. They also need the knowledge to monitor transactions and keep them on track.
Here are some of the steps involved in a typical probate real estate sale:
Appointment of the Administrator or Executor of the estate
The decedent’s will often names the Executor. The Executor handles the distribution of assets. The court appoints an executor when the will names no executor, no will exists, or the Executor is unable or unwilling to fulfill the role. The law grants the Executor or Administrator the authority to sell the property. The Independent Administration of Estates Act requires the executor to set the sales price, which must take the probate referee’s appraisal into account.
The seller’s agent carries the responsibility for marketing the property to attract the highest offers. Methods include signage, newspaper ads, advertisement on real estate websites, open houses networking, and responding to inquiries.
Sellers must weigh offers according to the court’s guidelines. No offer below 90% of the probate referee’s appraisal can be accepted. Often, substantial negotiation is needed to fulfill this requirement.
When the Executor or Administrator accepts an offer, he or she must send a Notice of Proposed Action to all heirs. This document outlines the terms of sale. The heirs must raise any objections to the sale within 15 days. When objections are raised, a court hearing must be held, where a judge may invalidate the sale.
Notice of Sale
The executor posts a notice of sale in the local newspaper if one of the heirs objects to the sale. An executor must also post a notice of sale if he or she does not have independent powers as defined by the IAEA.
If there are no objections from the heirs, the estate’s attorney can go ahead and schedule a confirmation hearing, which generally takes place in 30 to 45 days after the attorney files an application for the hearing with the court. A copy of this application must be delivered to all interested parties prior to the hearing.
In a regular real estate transaction, the property goes under contract and is taken off the market until the closing. However, with probate real estate sales, the broker continues to show the property up until the confirmation date in the hopes of securing a higher bid. An investor can appear at the confirmation hearing and attempt to overbid the buyer. To overbid, an investor must have a cashiers check for at least 10% of the minimum overbid amount. When there are more than one overbidders, the highest bid wins.
Like regular real estate sale, the buyer’s downpayment goes into escrow. If the deal goes smoothly, escrow closes in 30 to 45 days.
Why Investors Should Buy Houses in Probate
Part of making money in real estate involves finding great deals, and probate homes are one of the richest sources of below market properties. Estates are often motivated sellers. The estate may need cash for other debts, or the heirs want the home sold as quickly as possible. Estates generally don’t make repairs to homes prior to sale, so homes in probate are often ideal for fix-and-flip real estate investing.
Real estate investing provides a steady and lucrative income once you know how to buy properties at the right price. Many novice investors think foreclosures are the only way to buy properties under market value. Probate sales, however, provide another method of buying properties under market value. In hot real estate markets, buying a home in probate can be the most efficient and lucrative way to break into real estate investing.