The process of buying or selling a home is always complex. When dealing with the various expenses and complications that come with selling a probate property, those issues can become even more daunting.
For anyone wading into the probate process, the goal of sale should be to maximize the benefits of the family involved in the proceedings. In California, guidelines relating to probate matters are very specific so that neither the sellers nor the buyers are left in the lurch. Still, with these sales often arising unexpectedly, having some guidance provided by a professional realtor can be invaluable.
People who are well versed in real estate investing see short sales regularly and understand how tedious these matters can be. If you are unfamiliar with the world of trust and probate sales, working with a real estate agent like Susan Andrews will make the process much more manageable. Selling and purchasing probate properties is different in Los Angeles County than in other parts of the country, so it’s imperative that you work with someone who has direct knowledge of the California Probate Code.
It’s hard to work with probate properties until you understand the entire process. Probate sales occur after an intestate death – when a homeowner passes without having a will – or when property is left to an heir who then puts it on the market. With non-probate assets, the real property will go directly to a family member without assistance or oversight from the court.
In many cases, heirs are not prepared to receive a property left to them by a decedent. While the real estate may come without a buying price, there are still taxes, maintenance fees and many other costs to contend with. In this event, an heir might try to resell the home he or she inherits as a means of avoiding any sort of financial burden.
If the decedent does not have a will and the real property does not go to a family member, the state government steps in to oversee a fair and marketed sale of the home. In both situations the probate process goes relatively unchanged, though there may be other variables depending on where you live.
In general, probate properties have some standard stipulations:
- Property is sold without renovation
- Contracts come with limited or no contingencies
- Escrow fees, liens and taxes are paid by the seller at closing
- Accepted offers are approved by the state offices
- Purchasing parties typically pay a 10 percent deposit
- Upon approval, a closing date is set by the court
Based on these and other factors, probate purchases can offer an excellent investment opportunity. However, finding a probate property isn’t as simple as driving through your neighborhood and looking at signs. To compete against the other investors looking for these sales, it might be necessary to peruse the obituary section and visit the courthouse to gather information about short-sale properties. The busier real estate investors will go as far as to hire a third party to find and notify them of probate sales.
Through Luxury LA Homes, you can get information about current probate listings through our agents. Starting the probate process with the help of a real estate agent should improve your chances of finding a property you’ll be interested in and have a chance of purchasing.
In addition to helping find the properties, qualified agents will help you deal with and understand the process. Since probate and trust sales are regulated by the courts, buying and selling these properties is more controlled than with a standard sale. From time frames to paperwork, the details are much more specific and errors are a bit more weighted.
Probate sales also involve more personnel than other closings, with court administrators and an executor who represents the estate. On top of those parties, there will be attorneys representing the estate, agents representing the seller, and additional buyers accompanied by additional real estate agents.
All of these involved persons must be familiar with the verbiage used by the presiding court, which differs from your average real estate matter. A failure to understand the process will almost always remove a prospective buyer from contention. This is why you can’t just work with any real estate agent when you’re trying to purchase probate property.
Most probate sales are conducted by an administrator who has been named in the will of the deceased. This person oversees the property sale, as well as the distribution of other assets. When there is no will, or no administrator or executor is named, someone will be appointed to this position by the court. Executing probate sales comes with a great deal of responsibility, and sales will not move forward unless this position is filled.
The Independent Administration of Estates Act charges the executor or administrator with establishing an opening price for the property in question. This listing price is based on an appraisal from the a probate official, as well as additional analysis from a real estate agent with knowledge of probate sales. Once the price is set, the real property is listed by the assigned agent.
Probate properties are open to the general public immediately, and the marketing is usually fairly thorough in hopes of attracting high bidders. If you’ve spent any time researching real estate, you’ve likely come across signs and ad buys advertising open houses for probate properties.
While this portion of the probate is similar to most housing sales, the bidding prices are influenced by court guidelines. The appraisal from the probate referee carries a lot of weight, as the court will not accept a bid below 90 percent of the initial asking price.
After the bidding has run its course and an offer has been accepted, a notice is sent to the involved heirs to inform them of the pending terms. Sale can’t be finalized before this step, as the heirs can raise objections within 15 days of receiving the notice. Once all family has signed off on the sale, the matter is taken up by the court.
In certain cases, such as when an heir does object to the terms or if the executor isn’t granted full authority through the IAEA, probate sales have to be published in a public newspaper. Some wills may do away with this provision, but it’s not an uncommon issue.
As long as there are no other discrepancies, the estate lawyer requests a hearing date to close the sale. The court appointment is generally set 30 to 45 days after the attorney submits the request, and the real estate agent will continue showing the property during this window. Should another party come in with a higher bid, the selling price can be raised.
Even during the confirmation, prospective buyers may outbid the accepted price. Parties looking to overbid must attend the hearing and present a minimum of 10 percent of the overbid price. Without presenting a cashier’s check at the actual hearing, a minimum overbid will not be recognized by the court.
In the event that more than one party presents an overbid, the highest bidder is given priority. At this point the money is presented to the estate executor and the property enters escrow. After the hearing, it takes between 30 and 45 days for escrow to close.
Clearly, the probate process is complex and involved. Luxury LA Homes is here to help any interested parties with probate and trust sales. As you start the process, here is some helpful information to consider:
How To Begin a Probate Sale
The first step is usually to file a petition. This is done at the clerk’s office, and a court hearing will be schedule one or two months after the petition is filed. Commonly used petitions are typically pre-printed by the clerk, or may be available through your real estate agent or attorney.
Deciding on a Probate
While most estates over $100,000 have to be probated, exceptions do apply. The most common is when a surviving spouse continues to oversee an estate.
Understanding the Executor
The executor is often named in the will, and is left in charge of managing all things related to the probate. This individual will sometimes be referred to as the administrator, and is responsible for bill payments, taxes and asset distribution. When a decedent’s will provides no executor or the named party is unable to perform these duties, the closest relatives of the decedent are next in line to take over executor responsibilities.
Establishing Property Inventory
This is included in the duties of the executor. All properties and assets must be inventoried so as to establish the value of the estate. This process is done in order to ensure the assets are distributed properly. The estate must cover outstanding debts as well as payments to heirs and other beneficiaries. If the inventory shows that the estate value does not cover all the obligations, some beneficiaries may receive less than the amount provided by the will.
It’s also necessary that all properties be accounted for. Real and personal properties must be tallied by the executor so that distribution is handled fairly once the probate is complete. If properties are included in the will but have since gone missing or been sold, ademption statutes may come into play. These clauses help executors figure out whether or not assets should be replaced or if another form of compensation needs to be provided.
Standard Probate Duration
Barring any major issues during the process, a typical probate sale can be concluded in about eight months. Probate begins with a claims period lasting four months, and there is a standard waiting time between the filing of the first petition and the court hearing. The length of the process will also depend on the business of the local court, as it’s only possible to fit so many hearings into a calendar. Of course, financial issues and inventory contesters can cause the process to take much longer than eight months.
Cost of a Probate
In California, probate fees are set by section 10810 of the Probate Code. For the first $100,000 of an estate value, the fees are set at four percent. The percentage drops to three for second $100,000, and two percent for the remainder up to $1 million. The percentage continues to drop until the price reaches $25 million, at which point the court will decide the remaining fees.
These prices illustrate why it’s important to have a third party due an evaluation of a probate sale. Realtors with knowledge of these issues can help ensure a proper inventory and valuing process, possibly causing a drastic change in fees. Whether you work with a realtor or an attorney, don’t go through with a probate before getting an independent assessment.
How Estates Are Appraised
The process starts with the state controller, who assigns a probate referee. It’s the job of the referee to assess the market value of the real and personal property within the estate. The value assigned will account for outstanding debts against any property or assets.
The probate referee does not collect in the same way as an appraiser issued by a bank. Referees collect a fee determined by the overall assets. Since the fee is dependent on the work of the referee, this is another reason why a third party assessment is worthwhile. A probate referee will work with a real estate agent during the appraisal, but that agent will not serve as the independent assessor.
The Advantages of Probate
Unlike the bidding wars associated with standard real estate, probate sales are managed by the courts and a presiding judge. When disputes arise over bidding amounts, the court will weigh in. Court hearings require increased accountability and have more oversight. The executor also prepares reports and shows detailed accounts of the entire process.
Defining a Probate Asset
Most every asset belonging to a decedent falls into this category. This applies to joint-tenancy properties, though assets falling into the Tenancy in Common category may not be subject to a probate. Some financial holdings such as retirement accounts and life insurance have designated beneficiaries, in which case those may not undergo a probate. In the case where a spouse survives the decedent, standard probates typically do not apply.
Importance of an Independent Realtor
Because of the complexity of estate valuations, the services of a professional realtor who is not employed by the executor are extremely useful. In addition to helping with the initial assessment, a qualified realtor can assist with other important matters, such as providing the various contractors and workers needed to prepare the real property. Without the help of a professional realtor, it’s likely that the selling party will not get maximum value through the probate process.