If you’re thinking about buying real estate sold by an estate in probate or held in a trust, here are a few helpful tips that could increase your success. In previous articles regarding probate sales, I shared my experiences brokering California real estate held in probate or trust for many different types of properties, including condos, single family homes, rental properties, apartment buildings, and land. I shared what to expect from the seller’s side, so today we’ll discuss transactions from the buyer’s point of view and strategies that could help get your offer accepted.
Before we discuss buying tips, we need to consider two very important factors in the sale of probate or trust property. First and most important – sale of probate or trust property often occurs soon after the passing of the owner. When that is the situation, the mourning family absolutely should not be contacted directly. Grieving family members often tell me that within hours of publishing an obituary, dozens of real estate agents are soliciting listings or investors are contacting them at all hours with offers to buy the home, usually at low-ball prices, before it goes on the open market. Contacting the executor (who may or may not be a family member) is appropriate, but the first question should always be “are you working with a broker?” If so, buyers should contact the broker to discuss their offers.
The second factor to consider is that the deceased’s will or trust may direct transfer of real estate to a specific party through the estate distribution process or gives someone (usually a friend, relative or business associate) first right of refusal to purchase a property before it goes on the open market. These properties seldom make it to the open market and the family should be left to handle distribution without being harassed by outsiders.
OK, so let’s say the executor or trustee and everyone else involved in settling the estate agrees to sell some properties on the open market. Here are five tips to help potential buyers successfully acquire estate or trust properties.
Tip #1: Understand The Sale Process Specific To The Property. Some probate and trust sales require court confirmation, written approval by the beneficiaries of the estate or trust, or other unique process requirements. For others, the executor or trustee might have full authority to conduct the sale on their own and will use the same sales process they’d use to sell their own home. Strategy: Before making an offer, ask the listing broker how offers should be submitted and they will be reviewed. Ask what the most critical offer selection criteria will be. Also ask if there will be any special escrow processes or time constraints/restraints. For example, sales that require court or beneficiary approval might require that offers remain valid for thirty days rather than the standard three.
Tip #2: Don’t Expect An Off-Market Sale. Executors and trustees are generally required to solicit as many competitive offers as possible and to list the property on the plublic market, e.g. MLS or LoopNet for commercial properties. Executors and trustees usually won’t respond to offers before the property is listed, especially low-ball offers. Strategy: Depending on the property and local market conditions, be prepared to compete with other bidders.
Tip #3: Don’t Expect A Discount. As stated in Tip #2, executors and trustees have a financial responsibility to manage assets wisely, including getting at least market value prices for any real estate they sell. If the property needs clean-up and repair, the estate or trust will usually refurbish it as long as they can recoup their investment – just as any other seller would. However… there are two common situations when a discount might be considered: 1) when the estate doesn’t have enough cash to repair the property to market standards and will have to adjust the price or give credits to get it sold, and 2) when the estate or trust has little or no cash for ongoing expenses and will consider a discounted offer that guarantees cash by a specific deadline. Strategy: Be prepared to submit offers at or above market value and support discounts with specific explanations of why they are in the best interest of the seller. If the estate or trust needs cash fast, submit a creative offer that might contain multiple deposits, non-refundable pass-through deposits, or other features that help the estate remain solvent during escrow (implement a white knight business strategy).
Tip #4: Expect A Longer Review Period On Your Offer. Although many executors and trustees have sole authority to conduct property sales on behalf of the estate or trust, they seldom accept an offer without consultation with family members, their attorney, and others. More commonly, “beneficiaries” (those who will receive the assets at close of probate or at some time in the future) will want to review and/or approve any sales of significant assets – especially real estate. Whether done per a legal requirement or as an accommodation meant to keep peace in the family, beneficiaries and their attorneys will usually review all real estate sales prior to putting the property on the market and before the executor or trustee accepts an offer. These reviews are sometimes completed within a few days, but they often take several weeks if the people doing the reviewing live out of town, are on vacation, or are otherwise temporarily unavailable. Strategy: If the estate’s broker doesn’t tell you how long your offer needs to be valid, ask (per Tip #1).
Tip #5: “As-Is” Is A Variable Absolute. As mentioned in my previous articles relating to probate and trust sales, executors and trustees are exempt from providing certain disclosures when they sell property. In California, all probate property sales are considered “as-is” transactions, but that doesn’t relieve the seller from disclosing issues with the property about which they have personal knowledge. The executor or trustee (“seller”) might never have seen the property and therefore wouldn’t know firsthand if there is a microwave in the kitchen or if the lawn sprinklers work, but they should be expected to know – and disclose – if there is any litigation pending that involves the property or if the owner passed away on the property during the required disclosure period (this requirement varies from state to state). Executors and trustees sometimes rely on inspector’s reports and the listing agent’s property disclosure for information regarding the condition of the property. Strategy: Don’t expect the seller to provide inspection reports and disclosures not required for these types of sales. Budget for a full set of property inspections.
Buying real estate sold by an estate in probate or trust is usually a smooth procedure if you know up-front what to expect. Please be respectful to the family and work within the procedures st by law or established by the executor or trustee. Questions? Please submit your question or comment below.
Note: This is not a legal review of probate administration procedures and no legal opinion is offered. Always consult with a qualified attorney for advice on probate and trust administration.