You’re shopping for a new home and you see that a new listing has come to the market at an attractive price. It looks perfect for you, so you head over to the open house and you love it. The catch: it’s a probate sale. What does that mean and how does the sales process for probate properties work in California compared to more typical property sales?
What is Probate?
Probate is the court process through which a decedent’s estate is distributed to the heirs. This includes determining or confirming the individual who will be responsible for the safekeeping and administration of the estate. This person is responsible for securing the decedent’s assets, ensuring the decedent’s outstanding creditors are paid, and then distributing the remaining assets to the proper heirs. If a homeowner passes away and either doesn’t have a will (is intestate), or has a will but the home is not in a trust, then the probate courts will likely oversee the disposition of the estate.
How is a Home Sale in Probate Different from a Typical Sale?
A probate sale can differ from a “regular” home sale in several ways, including:
1. A home being sold through probate is exempt from some of the typical disclosures that you would find in a non-probate sale. The Transfer Disclosure Statement and Natural Hazards Disclosure are exempt from a probate sale, for example, so there will likely be less documentation and disclosure about the home than what you would find in a more typical sale.. The seller and their agents, however, are not exempt from disclosing any material facts that they know about the property which might affect the value or desirability of the property.
2. The sale must be approved by the heirs and the courts. In a more streamlined case, where the estate’s representative is given full authority to sell the property, then the sale can proceed with the just approval of all of the heirs. By law heirs have 15 days to object to the sale after receiving notification of the offer. The property purchase deposit (earnest money deposit) can be as low as 3%, which is standard for typical sales. If the sale has to be confirmed, the deposit is 10% of the purchase price.
If the estate’s representative has been given only limited authority to sell the decedent’s home, the sale of the property must be confirmed by the probate court. In other words, the judge has to sign off and confirm the sale of the property, and it’s the court’s job to get the best possible price for the home.
Court Confirmation:
In cases where the court must confirm the sale of the home, it now becomes a 2-step process:
Step 1: The listing agent will market the property and set an offer date like any other property sale. On offer day, a certified check of a 10% deposit made out to the escrow company must accompany all offers. The best offer “wins” and goes into contract, contingent on the probate court confirmation. The buyer can then complete and remove any contingencies that were in their offer. Once these contingencies are cleared, the estate’s attorney will schedule a court date to confirm the sale. In the meantime, the property continues to be marketed but the list price is changed to the overbid price (see below).
Step 2: As mentioned above, the court has a duty to get the best possible price on the property for the heirs. To do this, on the court date set for the sale confirmation other buyers may overbid on the property in an auction-like process. There is a specific way that the courts do this. The formula for the first overbid price that is marketed after the offer date is 10% of the first $10,000 ($1000) plus 5% of the remainder of purchase price. If there is an overbid, the judge will continue to increase the bidding price until the highest offer is bid. This may or may not be the original buyer in contract for the home. The highest bidder must then provide the courts with a 10% certified check for the overbid amount as their deposit. If it is a new buyer who prevails, their offer is non-contingent, so any buyer investigations or financing must be squared away by the court date.
Being open to probate properties is one way to expand your opportunities, especially when inventory is tight. It’s not a process for everyone, but if you do decide to pursue such a home, be sure to work with a real estate agent who understands the probate process.