Most people prepare a will that states the distribution of assets and investments among the heirs after their death. In case the person doesn’t prepare a will, a probate sale is executed.
Probate sales involve the legal procedure of transferring or selling the assets of a deceased person. It is a long and complex process, but it can be a valuable investment for the right buyer.
Read further to understand probate sales and what it entails.
🚀 Key Takeaways
- Most Americans Don’t Have a Will: Recent studies state that 55% of Americans do not have a will. And 1.3 million properties every year pass through probate.
- Probate Costs Are Very High! Americans spend approximately $2 billion dollars on probate sale each year. 75% of the expenses goes to the attorney!
- Longer Settlement Period: An average modest estate can take 6 to 24 months to go through probate.
- Bottom Line: The prices of probate properties are comparatively lower than the houses in the market. It is a great investment opportunity for people who are not in hurry and want to buy a cheap house.
What is a Probate Sale?
A probate sale is the sale of property (probate property) that is left behind by a deceased person who has not written a will. The probate court supervises the sale and approves all transactions of the decedent’s properties.
There are guidelines and processes to carry out probate sales. The buyer should hire a probate real estate agent to manage legalities wisely.
At the end of the sale, the court will first payoff the decedent’s debts and taxes. Afterward, the court will distribute the remaining money evenly amongst the legal heirs.
How Does a Probate Sale Work?
The court oversees the overall proceedings of probate sales. It nominates a representative of the estate (also known as an administrator) to handle the sale of property.
The administrator will hire a probate real estate agent to list the probate property on MLS and show the house to potential buyers.
Once the buyer makes a good offer, the probate court will approve the bidding before moving forward with the house-buying process.
The purchaser needs to make a deposit as a cashier’s check of at least 10% of the house’s sale price.
Probate Sales v/s Regular Sales
Marketing for probate houses is quite similar to the regular ones. Real estate agents will list probate properties on MLS, connect with potential buyers, and close the deal.
However, there are some differences that a buyer must be aware of.
- Probate properties are similar to ‘selling a house as is’, meaning the buyer will get the house in its current state. Hence, such houses may require some repairs and fixes.
- Unlike traditional sales, the probate court supervises every step in the home-selling process of probate sales. Therefore, the overall process can be time-consuming and intricate.
Pros & Cons of Probate Sale
Real-estate transactions in probate sales are different than traditional sales. It is therefore worth knowing the pros and cons before buying from a probate sale.
- Economical Prices: The price of probate properties is comparatively lower than other houses in the given area.
- Long-Term Gains: Probate real estate provides better investment opportunities for real estate investors and house flippers.
- Few Buyers Means Less Competition: In probate sales, there may be fewer competitors as some buyers aren’t interested in waiting for a longer duration.
- Higher Repair Expenses: Although the purchasing cost is comparatively less, the probate properties require higher maintenance and repairs.
- Long Sales Process: The overall home-selling process of probate properties can take up to a year or longer.
- Under Court Supervision: Probate sales require approval from the probate court at every step.
Buyer’s Guide: How to Buy a Probate House?
1. Search for a Probate Property: You can look for properties online or consult a real estate agent who specializes in probate properties.
2. Examine the House: Get a house inspection to inspect the overall condition of the house. The house inspector will create an inspection report summarizing the observations that will help you decide whether to purchase the home or not.
3. Compare Property Prices: Check the current prices in the neighborhood. Ensure you are paying a fair price for the property.
4. Make an Offer: Make a final offer on the property. The higher the bid, the more likely court will accept the offer.
5. Make a 10% Deposit: It is mandatory to make a deposit of 10% of the home value as a cashier’s check.
Is Probate Sale the Right Option for You?
Yes! Only if you you are not in a hurry and looking to buy a cheap house.
Buying a house through probate sales is a great opportunity for investors. In probate sales, there are fewer competitors and prices are comparatively lower than houses in the market.
Although the process goes through many funnels, it’s a unique profitable way to invest in real estate. You might need patience if you are very sure about buying a probate house.
But if you are a first-time homebuyer, you probably avoid probate sales.
Frequently Asked Questions (FAQs)
1. What happens when a house goes to probate?
Property goes to probate when a person dies without a will. The court supervises the overall home-selling process of the deceased person.
2. Are probate sales cash only?
Probate sales don't have to be cash only. However, cash is more appealing to the court as the process will work faster.
3. Who owns a house during probate?
Legal heirs own the properties during the probate sale process.