A probate property sale refers to the sale of real property—a residence and the land on which it sits—after a property owner (the decedent) passes away without leaving a trust or clear beneficiary. Under the probate court's supervision, an administrator or executor (the personal representative) is named to oversee the sales process. While not the most streamlined method for securing new real estate, buying probate property can be advantageous for various reasons.
In some cases, it allows for purchasing a property below market value. Probate properties may also generate only limited interest due to the "as-is" condition of the homes or the niche aspect of the probate real estate market, which can mean fewer competing buyers.
The probate purchase process, however, is unique and governed by specific rules, which can be unfamiliar to those accustomed to more traditional real estate acquisitions. Here are some essential tips when buying probate trust property in California.
Identifying probate property sales
For those interested in exploring the often overlooked probate property market, you don't have to look very hard. In many cases, a conversation with a trusted real estate agent or broker is enough to reveal listings available through probate.
While many of these properties are sold via traditional means—listed through a real estate brokerage—you can also acquire probate property through private sales involving a confidential bid process or via public or private auctions.
For the most comprehensive listings of available probate property, speak with a brokerage specializing in probate real estate.
The difference between a full authority and a limited authority sale
The most critical factor in determining the complexities of a probate property sale is whether it's administered as a full or limited authority sale.
Full authority sales are those where the personal representative has nearly full autonomy over the transaction. The only deviations from a traditional real estate purchase are additional documentation to satisfy the probate code and notification of certain interested parties of the transaction. Otherwise, the transaction process—from the listing and marketing phase to the offer, due diligence, and closing phase—is indistinguishable from a typical property purchase.
Limited authority sales are those that require court confirmation and include a number of specific regulations. In addition to the overall process taking longer, a limited authority sale can narrow a buyer's flexibility in acquiring a property, including the price, level of competition, and stipulations placed on the transaction.
Familiarizing yourself with the finer points of California's probate property laws while seeking out a trusted real estate partner specializing in the niche probate market can help you confidently approach the buying process.
Recognize what you're buying
For those new to the process, probate properties in California are sold "as-is," which carries a broad meaning where disclosures are concerned.
Limits of California's disclosure laws
In a typical real estate transaction, by law, a seller must provide full disclosure information on the property. With probate property disclosures, the requirements are less rigid. Foremost, while the personal representative is required to disclose as much information as they have on the probate property, they are exempt from the following disclosures:
- Transfer Disclosure Statement
- Seller's Property Questionnaire
- Earthquake Hazard Booklet and
- Earthquake Hazard Questionnaire
- Natural Hazard Disclosure
- Smoke Detector Compliance
The personal representative is required to provide the following disclosures:
- Lead-Based Disclosure
- Database Disclosure (Megan's Law)
- Water Heater Disclosure
- Knowledge of property issues or concerns of which the personal representative is aware
No guarantees of property condition
While there's plenty of motivation on the part of the personal representative to offer a listing in a condition that maximizes its value, particularly in a full authority sale, there should be no expectation on the part of the buyer that the property will be updated, cleaned or in any way move-in ready. Why?
As an appointed role overseeing a decedent's estate, the personal representative may or may not be related to the previous owner (or have any prior affiliation). Even if they are a relative, there's no guarantee they would possess an intimate enough knowledge of the property to accurately convey any potential issues.
Nor are they under any expectation to do so. Again, while in their best interest to convey as much information as possible, the "as-is" clause in the purchase agreement alleviates
much of a personal representative's liability.
Of course, as a potential buyer, you retain the right to inspect the home should your offer be accepted. But due to a California requirement that prohibits probate properties from being sold at less than 90% of their appraised value in a limited authority sale, you'll want to plan how you approach any shortcomings within the property.
The personal representative is under no obligation to fix any significant concerns. However, you can still negotiate for reasonable repairs, including a request to address minor issues or seek a price reduction. You can also walk away from the transaction entirely if any aspect of the process proves unsatisfactory.
Understanding the overbid process
The overbid process is considered by many to be the most challenging (and, many times, confusing) aspect of a probate sale.
The overbid process and calculation
In simple terms, other buyers and investors have the opportunity to make offers that are higher than the initially accepted bid. This 11th-hour bidding process is in place to ensure the best possible financial outcome for the decedent's estate and their heirs or beneficiaries. But it can be a headache for those hoping to secure a probate property. Below is a summary of how the overbid process unfolds:
After an offer is accepted and the court approves, the latter sets the minimum overbid number based on a formula outlined in California's probate code—a minimum of 10% more on the first $10,000 of the original bid, plus 5% of the original bid less $10,000. To put that in real terms:
- Assume a probate property lists for $725,000.
- The accepted offer is $700,000.
- A minimum of 10% on the first $10,000 equals $1,000 (.10 x $10,000).
- 5% of the sale price less than $10,000 equals $34,500 (.05 x $690,000).
- $700,000 plus $1,000 plus $34,500 equals $735,500 minimum overbid price.
To secure the property through an overbid, a buyer must be in court with a cashier's check that is 10% of the new purchase price. Based on the above example, that would mean a cashier's check for $73,550.
If you're overbidding for a property
If you plan to overbid for a probate property, come to court prepared. Many bidders lose out on properties because they arrive at court without the appropriate form of payment or without the expectations of purchasing a property "as is" and at a considerably higher price than its original listing. Probate property sales are not subject to negotiation once they enter the overbid process and are sold without contingencies or repairs.
If yours is the original offer
If you're a buyer whose initial offer was accepted, expect the possibility of another buyer swooping in and outbidding your initial offer. But remember, as our example of an overbid of $35,500 illustrates, that's just the minimum overbid.
Much like regular real estate, desirable probate properties in desirable areas will attract their share of interested parties. If you're set on buying a specific probate property, be prepared to bid and pay more than your original offer.
Connect with a trusted team of experts
Buying a property amid the probate process requires patience, financial flexibility, and, in the case of a limited authority purchase, taking on a bit of risk. At the same time, your diligence can be rewarded with an already outstanding property or one with plenty of potential at a below-market price. Start your buying journey by contacting The CREM Group today.
As a seasoned probate real estate broker, allow their knowledge and experience to help you navigate the unique purchase process. With expertise in probate, conservatorships, trusts, bankruptcy, and receiverships, and hundreds of satisfied clients, The CREM Group's proven track record of success in dealing with these hyper-specific transactions in the real estate markets of Los Angeles, Orange County, and the surrounding areas will ensure your probate experience is highly successful.