Probate

Probate is a court procedure that helps administer a deceased person’s last will and testament. It involves the court’s official approval of the will (if there is one) and the appointment of the executor of the estate, who acts on behalf of the deceased person and ensures the will’s directions are honored. This is called administering the estate. 

Some of the duties of the estate representative include settling claims, paying outstanding taxes and debts, and distributing the remaining assets as stated in the will.

If there is no valid will, any remaining property is taken over by the probate court who will usually appoint the closest living relative or surviving spouse as an executor of the estate. In these situations, the state’s laws determine who gets what part of the estate.

Real estate probate more specifically refers to the process that is undertaken when a decedent’s estate either transfers ownership or is sold to someone else after the death of the homeowner. Some homeowners can avoid probate court after death by placing their assets into a revocable living trust. This is a signed, notarized written document that indicates who will take over the property when a loved one dies.

Keep in mind that state laws affect the probate process, too, so it’s important to check with a lawyer familiar with your area.
 

Intestate probate is the legal process used to determine what happens to the real property of someone who died without a will. In these situations, the sale of the home is controlled by the courts and regulated on a state level.

The major advantage of buying probate real estate is its greatly reduced price—sometimes as little as 40 percent of market value. It can be particularly favorable to the investor when the executor of the estate is motivated to sell the decedent’s assets, either to pay off debts or to avoid having to pay a large estate tax or the costs of property maintenance. They may even be open to unsolicited offers.

Because probate homes come as-is, they may require some work, but those who are willing to put in the investment might be able to capitalize by flipping the property afterwards at a much higher price.

In addition to the lengthy probate proceedings, there may be significant issues with the property that you may not discover until it’s too late. Because the property is sold as-is, you won’t be able to request any repairs or a discount for the cost of doing them yourself.

Furthermore, if you end up paying more for a probate home than the amount at which it was appraised, you won’t be able to make up for the shortfall through your lender. The difference will have to be made up out of pocket, and you will be on the hook for it financially even if your mortgage approval falls through. In the purchase agreement for a traditional home sale, you would normally be protected in this scenario with a financing contingency. 

Depending on your level of comfort, you may also have to incur the extra costs of hiring an attorney and real estate agent who specialize in the unique requirements of probate sales.

The probate process can take anywhere from three months to several years, depending on the complexities of the estate. Factors that can extend the process include the number of beneficiaries, disputes among family members, unsettled taxes and liens, state and local laws, and legal complications associated with title transfers or challenges to the probate sale.

The presence of a will and the identification of a specific beneficiary of the home can make the sale go more smoothly – and more quickly. However, between the local probate court, the executor, the realtor, and multiple interested buyers, further delays may still occur. Even if your offer is accepted, it could still take months before you assume ownership.

Once you’ve decided to take the plunge and invest in probate real estate, there are a few things to keep in mind. First, you will need to make sure you have ready a down payment equivalent to 10 percent of your accepted offer.

Even though you won’t be able to get your down payment back if you change your mind, you may still want to request a home inspection so you know exactly what you are dealing with and what the potential costs of repair may be. If all turns out well, be prepared to wait 30 to 45 days for your offer to be confirmed by the probate judge.

While this process is ongoing, the executor still has the right to accept other offers. If there are multiple interested buyers with accepted offers, they will all meet on a set court date to petition the court after the 30 to 45 day waiting period. This process is like a live auction, with each buyer making a bid until the highest offer has been reached. The property will then go to the highest bidder, who must immediately provide a cashiers’ check in the amount of 10% of the new purchase price. Make sure you decide in advance the maximum amount you are willing to pay for the property.

Though the details may vary by state, there are generally four main steps in the real estate probate process.

There are multiple ways to find probate properties for sale, including viewing public records at the courthouse, searching online directories sorted by state and county, or checking your local paper. Realtors may also be a good source as they have access to the MLS (multiple listing service). You can also check social media, online bulletins, and local home auctions where probate property is often sold.