Selling Probate Property
If you are reading this page, you have probably been contacted by an attorney representing an Estate. Usually, the situation arises due to a death. However, there are circumstances when the person is still alive. In such a case, the Estate is being handled by a Conservator, who is acting on behalf of an incapacitated or under-aged person.
In Probate, a relative, executor or conservator has gone to Court to receive permission to handle the settling of the Estate and if there is real property, to be granted the authority to sell. Any property being sold at Probate is being sold by someone other than the owner. Without this Court document, the property cannot be sold as it would not have “clear title”.
Here’s how a probate sale works:
WHY A HOME IS SOLD THROUGH PROBATE COURT
In California, whenever anyone dies there is a process in place to ensure that the assets are distributed according to law. Someone can die without a will, Intestate, or with a Will. In either case, Probate is required. If someone dies with a Will and an Executor is named, who is living, willing and capable of acting, then the Court usually grants that named Executor the authority to handle the Estate.
In the case of no Will or if there is no Executor able to perform the duties, then the Court approves an Administrator of the Estate. If the person has been granted Full Authority, then there may be no court confirmation required for the sale of real property. In the case of Limited Authority, court confirmation of the sale is required. In the case of court approval, the process takes much longer than traditional real estate transactions.
In all cases, the Court oversees the distribution of any assets, including the sale of any real property. The court wants to be certain the property is fully marketed and sold for the best possible price. There are very definite steps, processes and procedures that must be followed.
COMMENCING A PROBATE SALE
The probate attorney or the court appointed representative must give notice to any and all known beneficiaries of the intent to sell the property. This is a formal document known as Notice of Sale. Sometimes after notice has been given, additional beneficiaries will appear, and these must be verified.
Once the attorney gives the green light, an agent like Nancy Valentine, who has extensive experience with the Probate process, will be hired by the estate. Most times the attorney will want an agent experienced in the Probate process. There is a special Probate listing agreement and the procedure for listing and marketing a probate property is very different than a conventional sale. If the process is not followed correctly, it could result in excess attorney time and litigation.
MARKETING A PROBATE LISTING
The property must be listed and fully marketed to ensure that it is sold for the highest and best price. Many uninformed agents believe that just because a property is in Probate and the owner is not involved, that it can be sold cheaper and off-market. Nothing is further than the truth! There is a very definite process. I provide a detailed Guidelines for Writing Offers to ensure that all offers comply with the complicated terms.
The list price is based upon the listing agent’s comparative market analysis. There is a court required appraisal, called a Court Referee’s Valuation and the property must sell at 90% of the Court Referee’s appraised value. These appraisals are drive-by only and can be different from the Fair Market Value. This can result in complications.
LIMITED DISCLOSURE REQUIREMENTS
Since the person selling is deceased or incapacitated and the representative of the Estate has never lived in the property, there is limited disclosure. The representative must complete a Seller Exempt Disclosure form. This form includes disclosing if anyone has died in or on the property within the last three years. Despite the limited disclosure requirements, there is still an obligation to disclose any material facts known. This is an important distinction. Many times, the Executor or Administration was in contact with the deceased owner, perhaps taking care of bills or health care. In that role, he or she might know of repairs or other issues regarding the house that would be considered a material fact.
While it is totally up to the buyer to fully investigate anything about the property, the estate has an obligation to be truthful.
HOW OFFERS ARE HANDLED
The estate representative will review any offers and accept or counter the offer, just like with any other sale. However, offers are analyzed differently than with a conventional sale. It takes an intimate knowledge of the probate contract and the probate process to evaluate the benefits of each offer to the Estate. Even after an offer has been accepted, the attorney must contact all known beneficiaries with a Notice of Proposed Action, giving the terms of the accepted offer. After this required notice has been made and either the required time for responses elapsed or a release from the beneficiaries received, the offer cannot be fully accepted. If an objection is made, it could result in requiring court confirmation.
In the case of a probate sale subject to court confirmation, a 10 percent deposit is usually required at the time the offer is made. Sometimes the attorney for the Administrator will accept a 3% or 5% deposit at the onset, with an additional 7% required prior to the court date.
If there is Court confirmation required, even after acceptance, the offer is subject to confirmation at Court and overbid. Even though the seller may have accepted a buyer’s offer, the offer terms are not final. The buyer may perform whatever inspections are part of the contract but before the estate representative, through their probate attorney, petitions the court to confirm the sale, all contingencies must be removed. The offer presented to court is “all cash, no contingencies”.
Then a court date is requested. Due to the backlog in the courts, this can sometimes be set at a date a couple of months later.
The lack of certainty and minimal seller disclosures are why probate sales are sometimes considered risky and not appealing to all types of buyers.
PLAYING THE WAITING GAME
Once the sale date for the court confirmation hearing has been set, the parties now must wait. During this time, the court requires that the terms of the notice of sale, including the date and location of the hearing, be noted in the MLS, with a continuation of advertising and marketing. This is to give other buyers the opportunity to come to court to overbid. Oftentimes the buyers with the accepted offer does not want this done. Additionally, many listing agents wither don’t know of this requirement of don’t want to continue with marketing the property, but it is in the best interest of the Estate.
The price in the MLS is revised to be the amount of the first overbid amount, as approved by the Court. The amount is calculated based on the accepted offer price: 10% of the first $10,000 or $ 1000 plus 5% of the remainder. The total becomes the new probate price to be marketed until the court date.
GOING TO COURT
In order for the sale to be confirmed, the court requires that the listing agent, plus any other interested party, come to probate court to confirm the sale. If the buyer with the accepted offer wants to try to outbid any other bidders, the buyer must also come to court to overbid. Anyone wishing to bid at Court, must have a cashier’s check, made out to the Estate, for 10% of the amount of the first overbid. That check must be shown to the Bailiff before the party is allowed to participate.
The property is then sold auction style with the opening bid being the first overbid amount. The increments to raise the bid are set by the Judge at the time of the Hearing. Depending on the number of bidders present, the Judge can set the increments in any amount.
Sometimes multiple buyers show up to bid on the property. If there are no over-bidders, the original contract is confirmed, and the buyer gets the property for their original contract price. If the property is sold to any over-bidders, the over-bidder’s cashier’s check for 10 percent, plus a personal check for the amount of any overage, must be given to the attorney representing the Estate. In the case of a successful overbid by another party, the deposit from the original buyer is returned within 10 days.