Probate Sales - What are the risks?

Hi everyone!

Hope all is well. Today, a new client of mine emailed me asking me about probate sales. Probate sales, specifically "court confirmation required" sales, have many differences compared to normal real estate sales, and different risks that you, as a buyer, should be aware of. Here was my response to her question about probates:

Probates

Probate sale is when the owner of property passes away and there are executors of the will who, with the help of an agent and lawyers, are selling the property.

There are 2 kinds of probate sales, “court confirmation required” and “no court confirmation required”. “No court confirmation required” is much less risky and much more like a normal sale. If it is no court confirmation required, I would not be against a first time buyer pursuing the property.

Court confirmation is exactly what it sounds like. It means, before the sale can be completed it must be approved by a court to make sure the estate has been appropriately satisfied. The court date is not set until the offer is recieved and usually, until, after the buyer has committed to the property by removing contingencies.

If it is “court confirmation required”, I would not advise a first time buyer pursue the property. A couple of reasons why I say this:

1) Court confirmation probates are best suited for all cash buyers, experienced investors. This is because the loan contingency will not affect them. There is no risk of them not being able to secure financing.

2) Court confirmation often require that many if not all contingencies (including loan) be removed prior to court date. Keep in mind, the court date may be scheduled at any time and can be months down the road. In that time, if something happens with your financing, or rates go up, etc, you cannot back out of the deal without losing your deposit.

3) Court confirmation probates often require your deposit to be 10% of purchase price. In standard contracts, good faith deposit is 3% max.

4) Court overbids: On the day of the court approval, people can come and overbid you. So if you have a really good deal, you may get overbid. If no one shows up to overbid you, then you may not have gotten that good of a deal.

With all that said, I have still had first time buyers who have done “court conf” probates, and we have been successful. However, if you are a first time buyer who is not big on RISK, I would advise you to make sure you understand the level of risk you are taking on prior to proceeding.

How do you find out if any property is “court confirmation” or “not court confirmation”? Easy, email me the property, and I’ll find out for you.