A Step-By-Step Guide to Buying Probate Properties
Updated: October 11, 2022
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Probate property is any asset that must go through the probate court. While it may include sellable jewelry, vehicles, collectibles, stocks and other assets, the term typically refers to real estate.
Buying a probate property may be a good option for individuals looking to save money. However, there are certain risks interested buyers need to watch for. It’s also important to know the steps involved, how to use a mortgage for financing the purchase and where to find probate properties for sale.
What to Know Before Buying a Probate Estate
Probate refers to the legal process wherein a deceased individual’s will is carried out. Some inheritors may sell probate properties because they don’t want to live in them. Others may do it to turn a shared inheritance into cash that can easily be distributed.
If the property owner died intestate (without a will), the probate court appoints an administrator. The assets will be put up for sale to either pay off the debts of the deceased or leave money to their legal heirs.
Probate properties can be good leads to interested home buyers. However, it’s important to understand what it is and how it works before buying one.
What Is a Probate Property?
Probate property can refer to any asset left by a deceased that has to go through a probate court, but it’s often used to refer to real estate.
Typically, probate properties are priced lower than their market values, making them attractive options to home buyers looking to save money. However, the process of purchasing probate properties can be complicated and may vary per state.
How Does a Probate Sale Work?
Probate properties are typically sold to cover the deceased owner’s debts. In some cases, inheritors sell their shared inheritance since cash is easier to distribute.
The probate process may vary from state to state, but it typically involves an estate representative responsible for settling the estate. This may include a probate sale. If the deceased set up a will, their chosen executor is the estate representative. If the property owner died intestate, the court will appoint an administrator.
How does a probate sale differ from a regular sale?
Probate properties are good options for interested home buyers as they tend to be priced lower than their market value. However, the process differs from regular property sales. Probate properties are also sold as-is, meaning the buyer accepts the property’s current condition without guarantees or warranties.
Is Probate Sale Right for You?
The reduced prices make probate properties appealing to many interested home buyers and investors. However, a probate sale may not always be ideal.
Potential buyers must consider various factors, such as the benefits and drawbacks of probate properties. It’s also important to take careful precautions before purchasing from a probate sale.
Understanding the Potential Benefits and Risks
Before buying a property from a probate sale, consider the pros and cons first. Determine if a probate property is right for you.
Buy a probate property only if you think you’ll benefit. If the risks are too much for your situation, consider not pushing through with the purchase.
The table below enumerates some potential benefits and risks of buying a probate property to help you make an informed decision.
Purchasing a Property From Probate Sales
There are multiple steps involved in a probate sale, which can be challenging for many potential buyers. That said, familiarizing yourself with the different terms and stakeholders, knowing where to look for probate sales, understanding how you can bid and finance the property purchase, and working with an attorney can help make it a rewarding experience.
Educating Yourself on the Process
As you research probate property sales, you may stumble upon unfamiliar terms. So, one of the first things interested home buyers need to do is to ensure that they have adequate knowledge. Knowing the terms, roles and stakeholders related to the process can help make an informed decision.
Below are some of the most important terms you need to know.
Ways to Find Probate Sales
Finding the right probate property to buy starts with knowing where to look. Generally, there are four ways to find probate properties for sale. To get the best deals, consider checking out listed real estate from different sources and compare features and prices.
How to Bid or Make an Offer
Once you have decided on a property, your next step is to make an offer. Typically, probate properties are priced lower than their market value. Participating in a bidding war requires you to prepare an offer. You should also prepare a down payment or deposit.
Make an offer to the estate representative
Through their listing agent, the estate representative receives offers on probate properties for sale. Typically, an offer needs to be in writing. The estate representative decides whether to accept, counter or reject an offer.
Wait for pre-court approval
If your offer is accepted, the estate representative will file a court-approved petition. This may take days or weeks, depending on the probate court.
Pay a deposit on the property
Unlike regular property sales, probate sales require the accepted buyer to put down a deposit. Typically, you’ll need to prepare 10% of the amount you offered. This deposit may be nonrefundable.
Attend the probate court hearing
After the estate representative accepts your offer, the probate court will set a confirmation hearing to finalize the sale. However, this doesn’t ensure that you’ll get the property.
Participate in the overbid process
Other interested parties may try to outbid you for the property. This process is known as overbidding and is often done like an auction. If your initial offer wasn’t accepted, you could also join the overbidding to try to secure the property.
Judges will raise the property price in increments based on your state probate law. You’ll have to win a round by matching the price.
Working With an Attorney
Buying a probate property can be challenging as it requires you to participate in court hearings. While it may cost you some extra money, having an attorney can help you understand the legalities. A lawyer can also help conduct a title search and prepare the necessary paperwork. They can review the terms of purchase agreements and other related documents. Additionally, an attorney can provide tax advice to help you avoid potential tax issues.
When choosing a lawyer, consider checking if they have handled similar cases. Reading reviews from previous clients may also help you find the right attorney.
Finalizing Your Purchase and Financing the Property
If you successfully secure the probate property you’re interested in, the next thing you need to do is finalize your purchase. If you have an agent or lawyer, you can ask for guidance on how to complete the process. It typically involves submitting certain documents and finding the best way to finance the property.
Provide funds for the remaining deposit due
If you get the property through the overbid process, you may have the remaining deposit due. Make sure you settle this payment so that your total deposit is 10% of the purchase price.
The probate judge will inform you of the amount you owe the seller. They may also give you time to get a cashier’s check from the bank.
Get all documents the court may require
The probate court may ask you to submit specific paperwork. For instance, you may need to show proof that you can pay the final purchase price of the property. Should you not be able to have a financing source, you may lose your deposit and the deal may fall through.
This means you’ll have to secure a financing source before signing the sales contract. Depending on your situation, you can get a conventional home loan. Depending on the property type and location, you may also consider a USDA home loan.
Sign a sales contract
Once everything is in order, you can sign a sales contract with the estate representative. Typically, the contract is prepared by the estate representative. In some cases, it’s provided by the probate judge and the signing will be done before both parties leave the courthouse.
Close the house purchase
Signing the contract means there will no longer be bids accepted. However, the sale will be subject to regular probate proceedings. This could take some time. After the waiting period set by the court, the property will be yours. The whole ordeal can take around six–12 months.
4 Factors of Probate to Keep Top of Mind
Buying from a probate sale can be a good real estate investment if you find the right property. That’s why it’s essential to conduct research. Learn about the different terms and steps involved in the process. Knowing these aspects will give you an idea of what to expect and ensure you’re prepared.
Below are some things you need to keep in mind if you’re set on buying a probate property.
Resources for Purchasing Probate Property
The process involved in purchasing a probate property can be overwhelming, especially for first-time buyers. The following resources can help you understand probate sales and how it works.
- American Bar Association: Find learning resources on estate planning, including the probate process.
- Ever Plans: Probate laws are state-specific. Access links to probate laws per state.
- National Probate Court Standards: While laws may vary per state, the National Council for State Courts provides standards to help guide probate courts. Find out more about probate laws and how probate courts function.
- Uniform Law Commission: Learn about the Uniform Probate Code, adapted in 18 states.
- Zillow: Find listed probate properties for sale based on your location.
About Nathan Paulus
sources
- Cornell Law School. "Uniform Probate Code." Accessed August 18, 2022.
- ProbateData. "A Complete Guide to Probate Real Estate." Accessed August 18, 2022.
- Trust & Will. "Probate Sale – What It Is and What You Need to Know." Accessed August 18, 2022.