Although it might be more complicated to purchase, it might save money upfront. A probate sale may occur when a homeowner passes away with significant debt. Whether the person left a will, would give any money left over to family members or other beneficiaries. If the estate lacks sufficient cash assets to satisfy creditors' claims, the property they own will be sold to the greatest extent possible. Probate homes are advertised and sold in the same manner as for regular homes, usually with the help of real estate agents who list and show the homes to prospective buyers. The process can be a little more complicated, but anyone is welcome to submit an offer on these homes.
Procedure for Probate Sales
State-by-state variations exist in the probate procedure, but generally speaking, the court will appoint an estate representative, known as an "executor" in the case of a will or an "administrator" in the absence of one. This person is responsible for administering the estate and assisting with the probate process. Finding the rightful creditors of the deceased is a step in this process. If must liquidate the estate to pay creditors, the executor will then be responsible for selling the property. To determine a listing price, the court will typically order an appraisal.Warning:
The home will likely be listed, marketed, and shown by a real estate agent that the executor will likely hire. When at least one buyer has made an offer, the executor must ask the court for permission to sell the house. Will inform the beneficiaries of the estate and the heirs of the deceased, and if no one files an objection, the sale will proceed with court approval. If more than one offer is received, all interested buyers must appear in court to present their bids. The highest bidder shall be declared the winner and shall deliver to the executor or administrator of the estate a cashier's check for at least 10% of the offer price.Pros:
- Property in probate may occasionally sell for less money.
- For investors who want to save, they may be a good choice.
Cons:
- Unknown flaws in the property could exist.
- Usually, the bidding process does not allow for contingencies.
- There is frequently a protracted closing period.
- Additional appraisal costs, legal fees, and other costs might be necessary.
- Might need a knowledgeable real estate agent for the procedure.
- Until it is proven that the estate is tax-free, the IRS won't permit the house to be sold.
Motives for Purchasing a House Through Probate
The main benefit of purchasing a house in probate is that they frequently sell for less than comparable houses in the neighborhood. A probate sale might be the best option if you want to purchase a home at a significant discount, either for yourself or as an investment property.Tip:
Because they are sold "as is," these houses are frequently attractive to investors looking for fix-and-flip properties.Why Not Purchase a Home Through Probate
There are numerous disadvantages to these properties. Usually, it takes a long time to gain ownership. If your offer is even accepted, it might take more than a year before you can close on the house because of waiting periods required by law, family feuds, unresolved debts and liens, and other issues. Since there is no actual "seller" in place, there is no way to ask for repairs or seller credits so that you can make the repairs yourself. Defects in the house could also exist but not be known or disclosed at the time of purchase. If you don't address these problems, you might not comply with your city's building codes, deed restrictions, or homeowner's association. If a probate home doesn't appraise for the total amount of your offer, your lender won't allow you to move forward with your mortgage. You will need to pay the difference between the appraised value and your offer out of your pocket to proceed with your purchase. If your financing falls through and you cannot secure another mortgage, you will also be responsible for completing the purchase. You'll almost certainly lose your earnest money if that occurs, at the very least.Note:
If you couldn't get financing for a traditional sale, a loan financing contingency would typically shield you from having to move forward with the purchase. Until can determine whether the estate will have to pay estate taxes, the IRS automatically places a lien against the decedent's assets. It cannot be sold until it is determined that the estate is not liable for this federal tax and the lien is lifted, which can cause a significant delay in the closing procedure. Lastly, purchasing a home during probate may necessitate hiring a lawyer and a realtor with experience in probate sales. This specialized knowledge can be helpful because these sales call for particular contracts and documents that aren't typical of other real estate transactions.The conclusion
If you're looking for a deal, probate sales can be a good choice, but they also have several additional risks and costs compared to regular home sales. If you're considering purchasing a home going through the probate process, consult an expert probate lawyer or real estate agent for advice. Additionally, prepare for a protracted waiting period before closing on the house.Frequently Asked Questions(FAQs)
What does "subject to probate" mean when referring to a sale?
"Subject to probate" indicates that the sale requires approval from the probate court. Although the estate executor may have approved the sale, court approval is still required. As long as the executor genuinely acts in the estate's best interest, this will frequently be a formality.How much time does a probate sale require?
Probate sales should take at least six months to a year, but they sometimes take longer.How many proceeds from an estate sale go to the probate court?
Executor, court, and attorney fees are included in the typical range of probate costs, which is between 4 and 7 percent of the total proceeds. The fees probate courts in your area impose are governed by state law. A flat fee of a few hundred dollars to a graduated fee scale that rises in price in proportion to the size of the estate are all possible fees.