When a property owner passes away without a will or clear instructions in their will, their estate must go through a legal process known as probate.
For homebuyers and investors, probate sales present both a unique opportunity and challenge.
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In this guide, we’ll explain how a probate sale works, the pros and cons of purchasing a probate property and how to navigate a sale.
What is a probate sale?
The purpose of probate is to legally transfer ownership of a deceased person’s assets to their heirs or beneficiaries.
But before the assets can be distributed, the probate process must ensure that all debts and taxes, including mortgages, are paid.
To accomplish this, the court can sell the deceased person’s property through a probate sale, use the proceeds to settle the estate’s debts and distribute the remaining funds to the heirs.
The probate process involves the following roles:
- Executor: The individual named to manage the deceased person’s estate
- Administrator: A court-appointed person who handles the estate in case there is no will or if the executor is unable to serve
- Heirs: Family members who may be legally able to inherit from the estate if there’s no will, depending on their relationship to the deceased
- Beneficiaries: Those who are named in the will to receive assets
- Real estate agent: Hired to list the property and manage offers
- Probate court: Oversees the entire probate sale process
Buyers interested in purchasing a probate property must be prepared for a complex process that may take longer than a standard real estate transaction.
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How probate sales work: step-by-step
A probate sale involves more people and steps than the standard homebuying process.
Let’s look at the steps involved in a probate sale so you can prepare for this unique process.
1. Property is listed for sale
Before the property is listed, the executor or administrator will likely have to clear out personal belongings and handle any complications related to the title.
Probate sales usually require that the property be sold “as-is” in its current condition. The price is often based on an appraisal.
A real estate agent experienced in probate sales will list and market the property.
2. Buyers submit offers
Buyers can submit offers through the property’s real estate agent.
The agent and executor will review the offers and accept the one that best serves the estate. A court hearing will be scheduled to confirm the sale.
3. Court reviews and approves offers
A judge will oversee the sale and make sure the property is sold at a fair price.
This step may introduce potential delays due to the time it takes to schedule the court hearing, find the judge, and resolve any disputes among heirs.
However, once the court confirms the sale, the buyer can proceed with a process similar to a traditional closing.
4. Sale is completed
Now, the buyer can finalize their financing, tie up any loose ends and proceed to closing.
The sale funds will be used to pay off the estate’s outstanding debts, and any remaining funds will be given to the heirs and beneficiaries.
Pros and cons of buying a probate property
Probate properties aren’t suitable for every buyer.
The pros and cons can help determine whether you’re up for the possibilities.
Pros of buying a probate property
- Potential to buy a property at a price below market value
- May have less competition
- Access to a range of property types and opportunities
- Potential to add value through repairs and renovations
Cons of buying a probate property
- Generally, a longer time frame for completion of the sale because of requisite court approval
- Properties sold as-is; buyers must accept the home in current condition
- Potential for buyer to be outbid
Each buyer must consider whether a probate property is worth the potential delays and risks.
Working closely with experienced real estate experts such as knowledgeable real estate agents and reputable mortgage lenders like Compass Mortgage can help make the process as smooth as possible.
Common misconceptions about probate sales
Probate sales have earned a mixed reputation in real estate, but that doesn’t mean that every property is fraught with difficulty.
Common myths or misconceptions about probate sales include the following.
Myth: Probate sales are always a great deal
Some buyers and new investors believe that probate properties are always a steal.
In reality, probate properties are appraised, and the court ensures they are not sold for less than their worth. The presence of multiple bidders could also drive up the price.
Myth: The process is quick and easy
Buyers should expect the probate process to take longer than a regular home purchase due to the court’s involvement.
The time involved depends on the estate’s complexity, whether there are any disputes between heirs or creditors and whether other bidders are interested in the property.
Myth: The properties are always in poor condition
A probate property’s “as-is” status has earned it a reputation for being in poor condition, but this isn’t always true.
The quality of a home typically depends on how well the property owner cared for it and how long it has been unoccupied.
Myth: Probate sales are rare
Probate sales can be easily found in any market if you know where to look. The best way to find them is to work closely with a real estate agent experienced in probate properties.
How to successfully navigate a probate sale
Preparation is the key to your success.
Here’s how you can prepare for a smooth probate sale:
- Work with a competent real estate agent. An agent with experience in probate sales is an invaluable resource, helping you find properties and understand the additional steps, paperwork and procedures involved.
- Understand the legal process. The court plays a significant role in the probate process, so educate yourself on what to expect in any related litigation.
- Do your research. Perform your due diligence on the property ahead of time. Because the property is sold as-is, you will be fully responsible for the renovations and repairs.
- Make a competitive offer. Come to the table with a loan commitment from Compass Mortgage so the executor and court know that you are a serious buyer and can’t be outbid.
Get started with Compass Mortgage
Compass Mortgage’s Get Committed® program puts you ahead of other offers.
Even before you find the property you want, you can apply, secure a loan commitment and submit an offer as soon as you see the property of your dreams.
You won’t have to worry about other property bidders, as a Compass Mortgage loan commitment holds the same power as a cash offer, giving you the buying strength to compete.