Do you know what probate is? Well…probate is a very important topic for your family’s future and wealth. Learn the necessary steps for a successful probate sale.
Probate real estate, what you must know about probate and how to sell the right way.
I’m Warren Oberholser with eXp Realty. As a realtor my goal is to help both buyers and sellers get maximum results for one of their biggest investments: their home. This article is all about how to successfully sell probate real estate.
So let’s start off with what is probate? Probate is a court procedure that comes into play when someone passes away to validate and carry out the deceased’s will. Part of the probate process is the general distribution of the deceased’s estate. Now, this would include personal and real estate property. When someone dies, an administrator or an executor handles the estate. This person is noted in the will. If a person passes away without a will, then the executor is appointed by the court. They are generally referred to as a public administrator. Probate is a legal process. So you need to have an attorney advise, guide and handle all the details. I am not an attorney, so I highly recommend you find one first before getting started on the probate process. Most attorneys who specialize in probate law generally have a law practice that focuses on estate planning and living trusts. Okay. So that’s what probate is. Let’s get into the most commonly asked questions about probate.
How long does the probate period last? In other words, after a person passes away, how long do you have before you can distribute the deceased’s estate? Generally, from the time of filing in the court to the approval of liquidating the deceased’s assets, it takes about six months. This is providing there’s a will in place and everything is in order. What will slow the process down is if the deceased doesn’t have a will and a public administrator has to be appointed by the court.
The will can be contested, and if the executor has limited authority, there’s two types of authority the executor has: full authority, which means the executor has full authorization to handle all the details so that any delay from the court; limited authority, which means each step the executor takes must be monitored and approved by the probate court. As you can imagine, this will slow the process down.
One of the most common questions I hear on probate is ‘when somebody does die, does their estate have to go through the probate court?‘ The answer is no, providing they have a living or irrevocable trust. So this is a basic overview of the probate process. Again, it’s a legal process, so you need to consult with an attorney before you begin your journey. Okay? So we’ve got a basic understanding of what probate is. Now, we need to get down to selling probate real estate the right way.
There are three steps to follow to successfully sell real estate in probate.
Step One, Find the right realtor. You need to hire a realtor who’s knowledgeable in the probate process and more important, is experienced in preparing and marketing the property accordingly so it will yield maximum profit for the beneficiaries of the estate. The beneficiaries are the people named in the will that will receive the proceeds from the estate. The reason why you need a realtor that’s familiar and proficient in probate sales is because there’re going to be specific documents the realtor needs to use. Now, this is for the listing agreement, as well as for certain disclosures.
The listing agent may need to post specific information in the MLS confidential notes to advise the buyer’s agent to use the probate purchase agreement when writing a buyer’s contract. There can be a specific timeline the listing agent has to follow when selling their house in order to be compliant with the probate court. Now, as it keeps saying, probate is a legal process that has to be handled by an attorney. So one of the first things I do when I’ve been hired by the beneficiaries to sell their estate is to reach out to their attorney who’s handling the estate. This way, they can give directions and advise on how best to move forward. The other reason why good communication with the attorney is crucial is because the court systems now are so different due to COVID-19.
Step Two, Create a plan to sell the property. Okay. Let’s say everything is proceeding correctly. As I said, it takes about six months from the time of filing to court approval to sell the property. So the next step for me as the realtor is to sit down with the beneficiaries and say, “What do you want to do with the property before it goes on the market? Just clean it out and sell it as is? Fix a couple of minor issues? Or have major repairs performed like remodeling the kitchen and bathroom?
Having a prelim report is important for a few reasons for this video. I’m just going to talk about any liens on the property. Does the property have any liens? This includes any property, state or federal, which is IRS tax liens. It includes any mortgage notes, which of course, means is there a loan on the property? And is there any mechanic liens?
A mechanic lien can be something that comes from a contractor who did work on the property and didn’t get paid, so they file a lien on the property, which is referred to as a mechanics lien. So with this information, you now know what’s owed on the property. You may also disagree or question some of these liens. A good title company will help you verify the validity of any lien, but also provide helpful contact information so you can research and hopefully, resolve any issues. Resolving issues like this can take anywhere to four to six months. So this is why you want to run that prelim first while you have time.
Three main property inspections are home, termite and roof. These inspections can be very helpful in understanding what the condition is of the property. It’s also important and understanding the value of the home as far as it’s current as is condition. Let’s say the beneficiaries want to repair the property before it goes on the market. So if they want to do repairs, then we’d first need to get estimates. With this information, I’ll put together a worksheet that’ll show what the cost for repairs are and what the approximate time will be. This way, they’ll know how much money they have to allocate upfront to handle all this.
Doing repairs on a house that’s in probate can be a great use of time. Again, can take up to six months. You may have repairs that take that long. Also to factor into your time is that before the repair people can get in there, the home may be filled with furniture and articles of the deceased. So you have to have somebody come in or yourself will have to come in and remove all those items. In the event the beneficiaries don’t have the money up front to handle these costs, there’s a few things you can do to navigate through this. One, some contractors and termite companies will accept payment at the end. In other words, when the property closes, they’ll actually get payment through escrow. They’ll put a lien on the property with the understanding with escrow instructions that they’re paid when the property closes. Number two, there’s companies that offer a full service from cleaning the house out to repairs. My brokerage, RE/MAX, has an affiliate company like this. So like with the contractor or termite company that will wait for their payment when escrow is closed, they do the same thing as well.
Let’s say the beneficiary say, “We don’t want to spend any money on the property. We just want to clean it up and put it on the market and sell it as is,” this is probably the most common request I hear and being that this is a sellers market, it probably makes the most sense. So let’s say the seller wants to sell the property in its as is condition. In order to determine what the true value is, you want to refer back to those inspections. They’re going to tell you what the condition of the property is and with that information and what’s current on the MLS, you can kind of see where you’re going to want to price the property at. This information is also going to be helpful for the buyers because these inspections are going to be part of your sellers disclosure package and this way, the buyer can assess from looking at those inspections, how much they want to pay and they may get pretty excited too because they realize, “Wow, there may
be other people just like me,” and what that does is it creates an atmosphere of competition. Who knows? You might get multiple offers, maybe even go into a bidding war.
Let me guess. You’re wondering what I recommend?
Well, I’ve had years of helping families selling their inherited properties, and this includes my own family. So I can tell you that just because you may love a family member doesn’t mean you’re going to be a good business partner together. In fact, I’ve seen how family inheritance can cause stress, as well as divisions amongst the family members. The simplest and the cleanest way is to just sell the property in its as is current condition. You may also want to consider taking care of any broken or missing items like a dishwasher, hot water heater, or a window.
By fixing or replacing any of these items, can actually increase your pool of buyers, especially those who are financing. For instance, if a property has a broken or missing hot water heater, it may not pass a lender’s appraisal. With interest rates so low, you want to generate all types of buyers, not exclude them. So by investing a small amount of money up front could increase your return greatly. What about selling your property directly to an investor or an online broker who offer you cash? This may be a viable solution if the inherited property has some serious issues like foundation problem, you are not working well with the beneficiaries. So by selling to an investor, could resolve your problems and you get your money fast. You need to understand that an investor or an online broker is usually going to offer you something that’s substantially less than what you could get on the open market, even after you subtract your selling costs, which include your realtor fees.
Step number three, Execute your plan so you’re ready to sell your house when you get the green light from the probate court. Depending upon how complicated your plan is, in other words, if you’re just going to do a few repairs to a complete remodel, you need to still itemize each step that you do as you go along. So let’s say your plan includes clear out the property, repair minor items, landscape cleanup, and clean and prepare for the MLS pictures. Each step can have several activities and tasks to it.
For example, clean out the property. Have all family members go through the property and identify what items they’d like to keep. Create a family member property list and verify that everyone is in agreement with how the items are to be distributed. Set up a time for the family items to be removed. Remove all trash out of the property. Hire an estate company to put together an estate sale. Make arrangements for all items not sold in the estate sale to be donated. So you’ll need to do something like this for each item you have, including repairs, landscaping, cleaning up, and of course, preparing for the MLS.
I hope you enjoy this article. Please email me any questions you may have. [email protected]
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