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Buying Probate Property – 7 Things You Should Know

will-small.jpg This coming Sunday, I will be hosting an Open House out in the Richmond District. It’s an extremely well priced single family home, and I know that it will likely draw hundreds of potential buyers. The biggest draw to the place? It’s a probate sale.
A property ends up in probate if a property owner dies without a will. (Just a little side note… Everyone should have a will… if you don’t already have one, get one! If you need help getting one, let me know and I can put you in touch with an estate planner or an attorney that can help you get your ducks in a row for what is, unfortunately, the inevitable!) When a property ends up in probate, it typically has to be sold so that the proceeds can go to the estate, and eventually, to the heirs. So how does a probate sale actually work? Read on!
1. Two Kinds of Probate Sales – An administrator is assigned to the estate, and the property ends up being sold in one of two ways. Occasionally, the administrator has the power to sell the property without court confirmation. If this is the case, the sale progresses just like any regular non-probate sale. The main difference in this case is that the estate does not need to provide the buyer with any disclosures about the property (in a regular sale, the seller must provide potential buyers with all available information about the property.) Buyers make offers, the best offer is taken and the sale eventually closes. However, when most people think of probate sales, they think of the kind that require court confirmation. For whatever reason, maybe the heirs are bickering, or maybe there are no heirs, the sale of the property often requires court confirmation. This is the kind of sale I’ll focus on today.
2. Where to Find Probate Property – Most probate sales end up listed in the Multiple Listing Service (MLS), but those that don’t are listed on the BlueSheet which can be found at the California Superior Court in San Francisco. Of course, if you are a buyer working with a REALTOR® that knows you are interested in probate property, your REALTOR® will do the searching for you.
3. Is Probate Property a Bargain? – Unfortunately, bargains don’t exist in San Francisco. Not even in probate sales. The accepted bid on the property must be a minimum or 90% of the appraised value of the property. Of course, everyone makes mistakes. And if the appraiser over appraised the property, it can be appealed. But typically, buyers scope out probate properties to try to find that elusive unicorn (that’d be the non-existing bargain I mentioned) and interest builds to a situation where there are multiple offers… so finding an offer that is at least 90% of the appraised value is usually a breeze.
4. Before the Offer – Probate property, like most other property, is marketed by a REALTOR® that represents the seller, in this case, the estate. Probate sales are “as is” sales, and as I mentioned before, the estate does not have to disclose anything about the property. Does that mean you have to make an offer on the place blindly? Not a chance! You have every right to fully inspect the property. Bring a contractor, bring a friend, bring an architect, bring your mother! It doesn’t make a difference who you bring, just be sure to bring them BEFORE you write your offer. Also, one thing to keep in mind… with your offer, you will have to submit a cashier’s check for 10% of your offer price, payable to the estate.
5. So Your Offer Is Accepted: Now What? – Your offer is accepted! Are congratulations in order? Not quite yet. Next comes the court confirmation. A court date will be set and the date will be published. For the buyer with the accepted offer, this is a scary date. This is where other people take a stab at overbidding on the property.
6. How do Overbids work? – The first minimum overbid must be a minimum of 105% of the original accepted offer, plus $500. If there are other intererested parties, then the subsequent bid increases are set by the court, and are typically set at $5000 to $10,000 intervals. Bidders must come prepared to pony up some cash-o-la at the court proceedings if their offer is accepted, again, in the form of a cashier’s check payable to the estate. My suggestion – bring a check that equals 10% of the highest amount you are willing to offer. If you are lucky enough to get a smaller offer accepted, anything over 10% of the price still applies to the purchase price.
7. So What’s the Key to Winning in Probate Court? – This is not the answer that most people want to hear, but the key to winning probate is to discourage others from making offers in court… and no, you can’t stand outside the property and tell passersby it’s haunted and hope word gets around. The way to avoid other offers is to avoid a bidding war, and the way to avoid a bidding war is by making your initial offer count. You should make your initial offer high enough to discourage others from an overbid that is 105% plus $500 when the court date rolls around. But you don’t want to overpay, so you also want to be sure it’s low enough to make buying the property worth your while. Getting the price right definitely takes some finesse, but with the right REALTOR® on your side, the process can be easy, painless, and even a little fun!
If you have questions about purchasing probate property, give me a call, I’m always happy to help!