When someone dies without a Will, there are numerous legal proceedings that must follow through a process called probate. In many cases these proceedings will involve a probate sale, where the court oversees the sale of any real estate owned by the deceased. While this can be an interesting opportunity for aspiring homebuyers, it is often a difficult process for loved ones of the deceased. Keep reading to learn exactly how a probate sale works, and the pros and cons:
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What is a Probate Sale?
A probate sale is the court-supervised process of selling a piece of real estate when an individual dies intestate, or without a Will. The court will typically appoint the decedent’s next-of-kin as an Executor, who will then manage the sale of the home. The final sale must be court approved, which often extends the typical home-selling timeline.
This process is conducted as part of probate, where an individual’s Estate is managed and ultimately closed by the court. Each state has unique probate laws, but the structure is similar. In most cases, it can be avoided with proper Estate Planning.
How Does a Probate Sale Work?
A probate sale starts with the court appointment of an Executor, typically the closest living relative. This person will be in charge of selling the home. The next few steps are similar to a traditional real estate transaction. The Executor will work with a real estate agent of their choosing to list and market the property, with the goal of securing the best possible sale price for the Estate.
Potential buyers can then submit offers, but they must include a minimum 10 percent down payment to be accepted. The Executor can review offers with the agent and decide to accept or negotiate. From there, a court date will be set to approve the offer and confirm the sale of the property.
The court will require the Executor, buyer, and any other interested parties to appear on the court date. The property will then be sold at auction, with the starting price set at the accepted offer amount. If no one else bids, the initial buyer will secure the property.
However, if bidding starts another buyer could step in and win the property. The new buyer will then be required to pay the 10 percent down payment on the spot. (The previous buyer will be refunded their deposit amount).
After the court proceedings, a contract will be signed between the Executor and the buyer with no added contingencies. This means the Executor will not be responsible for doing anything to the house before closing. The closing date will often be set for two weeks out, allowing the buyer time to get a home inspection.
Probate Sale vs Regular Sale
A probate sale and a regular sale have many similarities, though one is overseen by the court. Probate sales are reviewed from beginning to end by a probate court; for this reason they often take much longer to complete.
Regular real estate sales are conducted with much less oversight, though they are subject to inspections and possible contingencies. In a traditional real estate sale, buyers can negotiate repairs or work done to the property. Probate sales are completed as-is, and buyers are not permitted to request any changes to the house.
The process of a confirmation hearing is also unique to probate sales. Regular transactions are negotiated between buyer’s and seller’s agents. While certain bidding wars can ensue, regular sales are not sold in a courtroom auction.
How Long Does a Probate Sale Take?
A probate sale can take anywhere from 6 to 12 months, with some sales taking longer than a year to close. In comparison, a traditional real estate sale takes around 70 days to complete. One reason probate sales take so much longer is because of the court involvement.
Probate sales also face challenges during the marketing process that can extend the length of the sale. Many buyers will be hesitant about the as-is condition of the property or the 10 percent deposit required at the time of the offer. For this reason, probate sales are often purchased by real estate investors.
Pros & Cons of Probate Sale
From the perspective of a homebuyer, the pros and cons of a probate sale can be interesting to consider. Probate properties are commonly known in the real estate world for being listed below market value, making them an attractive opportunity for buyers.
There are, however, a few potential downsides of buying property in a probate sale. Buyers need to be aware of what they are getting into -- both in terms of the property and the timeline. Here are just some of the pros and cons to think about with a probate sale:
Pros of Probate Sale
Reduced Price: Because probate sales are sold in as-is condition, oftentimes the price will be slightly lower than other homes on the market.
Less Competition: The conditions of a probate sale may be intimidating for some buyers. For this reason, you may find there is less competition when compared to traditional real estate.
Investment Potential: The undervalued nature of probate sales makes them appealing opportunities for real estate investors.
Cons of Probate Sale
Property Condition: Probate properties are sold as-is, and buyers are not allowed to request repairs be made. Buyers can, however, conduct an inspection before submitting an offer.
Long Transaction Time: The extended length of a probate sale can discourage buyers, particularly because transaction times are so hard to predict with the court.
Court Proceedings: Buyers will have to deal with certain legal formalities, such as appearing in court to confirm the sale of the home.
Create Your Estate Plan to Remove the Stress of Probate for Your Family
Probate sales are somewhat similar to traditional real estate transactions, though they are overseen by the court. For family members of the deceased, this can require significant time and planning. The person named as Executor will essentially be put in charge of managing the sale of the home -- a process that could take years to complete.
The entirety of probate can be difficult for family members and loved ones, as it comes during a time of loss. The court will require numerous documents, personal information, and appearances. Not only can this be emotionally taxing, but the responsibility can take away from other commitments.
Fortunately, this outcome can be avoided by leaving an official Will. This will allow you to designate an Executor to manage your affairs and determine how you want your Estate handled. While there will still be certain legal processes involved, probate will run much smoother. Learn more about how to create a Will to help put your mind at ease.
Probate sales are wildly different situations, depending on which side of the transaction you are on. After the loss of a loved one, being appointed the Executor for a probate sale can be both stressful and time consuming. On the other hand, buyers may see these properties as an opportunity to own real estate.