What You Can Expect When You Buy A Home Through a Probate Sale

This is a guest post by Nancy H. Rossi, an estate planning attorney at Nancy Rossi Law in San Mateo.

Chances are you've seen a home for sale in Burlingame, for example, that says in the MLS marketing remarks that it's a probate sale. This post will hopefully give you a better idea of what probate is, how the process works, and how it may affect you.

A probate is the court supervised process of proving that the decedent's will (the person who has died) is valid, inventorying the decedent's property, paying outstanding debts, and distributing the property to the decedent's legal heirs in accordance with the will. In the case of real property, the probate provides a process that allows the property to pass with a clear title.

The estate representative will be an executor if the decedent had a will or an administrator if the decedent did not. In the majority of cases, the representative is granted powers through the Independent Administration of Estates Act (IAEA) unless the will prohibits it, the appointment is contested, or the representative cannot obtain a bond to insure his or her actions because of a poor credit rating or a criminal record. If IAEA powers are granted, real property may be sold without court confirmation. The representative is still required to send a Notice of the Proposed Action to the decedent's heirs to let them know what is happening, but the representative is able to negotiate the price and terms of the sale, and the sale will not differ from any other transaction.

If the sale of the home is required to be confirmed by the court, the purchase agreement must total at least 90% of the probate court referee's appraised value of the property and the appraisal may not be more than a year old. Where a probate sale is a little different from "normal" sales is that the buyer is required to deposit 10% of the purchase price right away into the escrow account (most sales typically have a 3% deposit).  The sale is then advertised in the local newspapers and the court schedules a hearing thirty days later to conduct a public confirmation of the sale.

At the hearing, which usually lasts about ten to fifteen minutes, the judge announces the purchase price and any member of the public has the opportunity to make an overbid at that time in court for the property.  The minimum first overbid, however, must exceed the accepted offer by at least 10% of the first $10,000 and 5% of the balance. In addition, the offer must be unconditional -- with no contingencies -- so all inspections must be completed beforehand.  Before an overbid can be approved by the court, the purchaser must also be pre-approved for the loan and a cashier's check must be presented for a deposit equal to 10% of the final purchase price. This strategy is not for everyone -- many home buyers prefer not to have inspections done at their expense prior to even knowing if they'll be getting the home. However, if you're an investor or contractor, it could be a good opportunity if you're willing to be all of your due diligence ahead of time (but still not knowing if you'd even win in an overbid situation).

If the sale is confirmed to someone making an overbid, the original purchaser will be refunded their deposit. Thus, there is no risk of the original purchaser losing the deposit if the sale is not confirmed. However, if the overbidder fails to complete the transaction, he or she will lose the deposit. For this reason, few sales actually attract overbids at the court hearing and the process affords the opportunity to buy the property at a discounted price with less competition.

In the majority of cases, buying a house from a probate can be completed quickly and the process is the same as any other transaction. Every estate is eager and motivated to sell the property and the confirmation process may allow you to purchase estate property for a great price and with less competition. With the help of an experienced real estate agent, you should not be afraid to make an offer and purchase a probate property.

This article is intended to provide general information and should not be relied upon as legal advice.  You should consult with an attorney about your particular circumstances before taking any action.