Buying probate homes for sale is a great way to find bargains, but they come with great risks. This article discusses what the process is like.
Probate houses for sale give real estate investors an opportunity to buy properties at prices below their actual market value. But there is a catch: the process is lengthy and confusing, especially for a first-time buyer.
In this blog post, you will learn all about probate homes, including:
- What a probate sale is
- How does it differ from a regular sale
- Potential benefits and risks of buying a probate property
- How to find probate properties
- The process of buying a probate house
If you are considering buying a house from a probate sale, this is for you.
What Is a Probate Sale?
A house enters a legal process known as probate when either of these things happens:
- The homeowner dies without a will or an heir; or,
- They die while owing a huge amount of debt.
In this process, a probate court takes control of the deceased person’s estate (or remaining property). They then appoint the late owner’s closest living relative as an executor to oversee its sale. The executor would put up the property for sale at the best possible price.
However, the executor may want to dispose of their relative’s property as soon as they can. So they likely will not put in the work required to sell the property at its maximum value. So you might find probate homes for sale for as low as 40% of their actual market value.
This may sound like a great bargain, but you will have to pay for the savings with time. Probate sales can take six months to a year at best. But factors like multiple estate beneficiaries, pending estate tax returns, and external events can further lengthen the process.
How a Probate Sale Differs From a Regular Sale
Probate homes for sale are similar to regular properties in a few ways:
- A real estate agent lists the property
- Interested buyers make an offer
- A home inspection is allowed
Aside from these, however, buying a probate property has a different process.
The Probate Court Is the Seller
Because the owner of the probate property is deceased, a probate court controls and oversees the transaction. They also decide on the listing price. But they usually based their decision on a home appraisal or in consultation with a real estate agent or the previous owner’s relative.
10% Downpayment Is Required
Unlike in a regular sale where you can negotiate how much or how little you put in as a downpayment, a standard amount is set for probate sales. When you make an offer, you will also have to accompany it with a 10% downpayment, often in the form of a cashier’s check.
The Sale Is Finalized in a Court Hearing
Even if the estate representative accepts the highest bid, the court must make the sale official at a confirmation hearing, which may take time to schedule. Prior to the hearing, the beneficiaries of the estate must be notified of the sale so they could comment on its terms.
Risks of Buying Probate Homes for Sale
Before you learn how to find probate real estate, you need to know how buying this type of property can be risky.
The Probate Sale May Be Overwhelming
Each state has very specific rules about the probate process, so first-time buyers may get confused and end up failing to follow court rules, which could cost them their downpayment. To make things easier for you, hire a real estate attorney or a real estate agent that specializes in this type of sale.
Different Factors Can Cause Delays in the Sale
Probate sales are known to take on a life of their own and can drag on for many months or even years. If the probate property for sale has more than three beneficiaries, for example, the court has to notify and update each and every one of them about the progress. And according to The Balance, the number one reason why the probate is held up is mostly because of beneficiaries who live far away.
The Property Might Have Unknown Defects
Because the owner of the property you are buying is deceased, the probate court or the estate representative may not be able to disclose any problems with the home. This is why it is crucial to get a thorough home inspection of the property before finalizing your purchase.
Potential Benefits of Buying Probate Homes for Sale
With all these risks surrounding probate houses for sale, why are property investors still trying to buy them? There are three main reasons why:
Lower Purchase Price
Probate sales are more complicated than regular sales. The buyers are not the only ones who have to endure the long legal process, but the estate’s beneficiaries as well. This is why the representative may choose to sell the house below its market value. The lower the price, the more potential buyers it attracts.
Great Opportunity in Hot Markets
When you are in a seller’s market and the home prices are too high, knowing how to find probate real estate can help you discover a good investment. But you have to mind the risks when buying one of these houses.
Probate sales are not as common, so most homebuyers may not even know they exist or where to find them. And because of the complicated process, those who are buying a house for them to live in would not want to take part in a sale that can drag on for up to three years. So most of the time, you will find yourself bidding against other investors.
5 Ways to Find Probate Homes for Sale
If you want to know how to find probate properties for sale, here are five ways to do it:
#1: Contact Real Estate Agents
The probate court or the estate representative hires a realtor to sell the house, and they will use traditional means to market and sell the property. One of these means is their professional network. So most real estate agents know about probate homes for sale in their area.
#2: Make Requests From Probate Courts
You can file a request at your local probate court and they will provide you with a list of recently filed cases. It is up to you, however, to determine which ones are still active and if the case’s inventory has real estate. Once you find one, you can contact the estate representative included in the case file.
#3: Search Local Newspapers
Just like other properties, you may also be able to find probate homes for sale in the newspaper. Since the real estate agent employed by the estate representative has to market the house as best they can, posting an ad in the local newspaper is just one way they would do it. You can also check social media pages and online bulletin boards. If there is none listed in the classified ads, try going through the obituary section to find leads.
#4: Check Local Home Auctions
Foreclosures are not the only properties you will find at an auction. You can find ads about house auctions in newspapers and online bulletin boards. The additional risk about buying a probate home at an auction is that the price of the winning bid will be higher because of a bidding war. It is best to save this as a last resort if you are looking for a good bargain.
#5: Go on Real Estate Websites
Same with how real estate agents would post an ad in the local newspaper, they might also upload the listing on real estate websites like Mashvisor. You can use our platform to search for properties for sale in the city or neighborhood of your interest. You will also find our analysis on how traditional and Airbnb rentals do in a certain area.
How to Buy Probate Homes for Sale
When you find a probate property that you are interested in, you can now move on to the next steps:
Step 1: Set Your Expectations
The probate sale is a long and bureaucratic process. It involves a lot of moving pieces like the local probate court, executor, beneficiaries, real estate agents, and interested buyers, so delays often occur. A probate sale can last from 1.5 years to 3 years to close, so try not to invest all of your money in this one house and look for other ways to generate income in the meantime.
Step 2: Submit Your Offer
Just like regular home sales, you can make an offer any time for as long as the probate case is active. But unlike regular home sales, you are required to provide a 10% downpayment, often in cashier’s check, as soon as the real estate representative accepts your offer. Should they make a counteroffer, you will have to pay 10% based on the new amount.
To make the sale official, the probate judge has to approve the highest bidder at a confirmation hearing, which is set 30 to 45 days after the representative accepts an offer. During this time, the listing must continue to be advertised but with the accepted purchase price displayed to give a chance to other interested buyers who would want to raise their bids.
Be careful when choosing which property to place an offer on as you are not allowed to put any contingencies in the sale agreement.
Step 3: Request a Home Inspection
Unfortunately, once the representative has accepted your offer, you will not be able to back out of the purchase agreement for any reason. But it is still a good idea to have the property inspected. If it turns out that the home is in a worse condition than you can handle, you can decide whether it is worth canceling the contract and losing your downpayment.
Step 4: Court Hearing
After the 30-to-45-day waiting period, all buyers with accepted offers will petition the court at the same time. Similar to an auction, each buyer will make a bid on the property, and the others can raise theirs. Once the highest bidder has been determined, the court will confirm their offer.
If you ended up being the highest bidder, you have to provide a 10% down payment based on the new purchase price on that day. So make sure that you have already decided on the maximum amount that you are bidding on the property prior to the hearing. This way, you can have a cashier’s check based on that amount ready for when you go to court.
The Bottom Line
If you are a real estate investor looking for a house to buy at a low price, buying probate properties may be a great opportunity for you. But first, you need to consider the risks you might encounter when you go through the probate process:
- You might get overwhelmed by the lengthy and confusing process;
- The estate’s beneficiaries and other factors might cause delays; and,
- You might discover defects in the house that you cannot afford to fix.
These great risks come with great rewards, though. You may be able to obtain a property way below its market value, which can be a huge bargain especially when you are in a seller’s market. And because probate sales are not recommended to the average homebuyer, you will have less competition.
Probate properties for sale are not that common, so you will have to actively look for one. You can contact real estate agents and your local probate court, or check newspapers, online bulletin boards, local auctions, and real estate websites. Once you find a property you want to buy, you can submit an offer and prepare for the long process that awaits you.
Whether you are looking for a probate house, foreclosure, or any type of property that you can turn into a rental, Mashvisor is here to help you. You can use our Property Search to find homes for sale in your preferred city or neighborhood. And aside from the usual information that you get from browsing real estate websites, you will also see our rental analysis for you to determine if a property is right for your rental strategy.