How Does a Probate Sale Work?
It could save money up front, but it can be a complicated way to buy
If you’re searching for a deal on a home to buy, you might come across a probate sale. A probate sale can happen when someone dies without a will. Any property they own is then sold by the state, which uses the proceeds to pay off creditors or to distribute to family members and beneficiaries.
Homes in probate are marketed and sold just like traditional properties, typically with a real estate agent listing the house and showing it to potential buyers. Anyone is free to make an offer on these homes.
How Probate Sales Work
The probate process varies slightly from state to state, but it’s a bit more complicated than a traditional home sale.
Typically, the court will appoint an estate representative (called an executor or administrator), who will then be charged with selling the property. They’ll usually enlist a real estate agent, and with their help, list the home, market it, and show it. The court will also order an appraisal to help set the listing price.
Once a buyer has put in an offer, the representative can then petition the court for a license to sell the home. The deceased’s heirs will be notified, and if no one files an objection, the sale can move forward and a court date is set.
At the court appointment, the buyer, as well as any other interested buyers, must attend and submit their bids. The highest bid wins, and the winner must hand over a cashier’s check for at least 10% of the offer price to the property’s administrator.
Good option for investors looking to save
May have unknown defects
No contingencies allowed
Lengthy closing period
Extra legal fees, appraisal fees, and other expenses
May require a specialized real estate agent
Reasons to Buy a Home at Probate
The major advantage of buying a home in probate is they typically sell for a much lower price point than other homes in the area.
So if you’re seeking to scoop up a home at a significant discount, either for yourself or as an investment property, a probate sale might offer the best deal. Since these homes come “as-is,” they’re often appealing to investors looking for fix-and-flip properties.
Reasons to Not Buy a House at Probate
Unfortunately, that’s about where the pros end for probate sales, as these properties also have a lot of drawbacks. First and foremost, they typically take a very long time to assume ownership. Even if your offer is accepted, it could be upwards of a year before you’re able to close on the home. This is due to legal waiting periods, disputes among the deceased’s family members, unsettled debts and liens, and other factors.
Additionally, with no real “seller” in place, there’s no way to request repairs or credits to make repairs yourself. There also may be defects in the home that aren’t disclosed at the outset. These issues could potentially put you out of compliance with your city’s building codes, deed restrictions, or your homeowner's association.
If a probate home doesn’t appraise for the full value of your offer, your lender won’t pay the full amount you offered. That means you’ll need to make up the difference between the appraised value and your offer out of pocket in order to move forward with your purchase. Similarly, if your financing falls through and you’re unable to get approved for a mortgage, you’ll also be on the hook for the purchase financially. (A loan financing contingency protects you from this in a traditional home sale).
Finally, buying a house in probate may also require the use of an attorney, as well as a real estate agent who specializes in probate sales. These sales require unique contracts and documents not common in other types of real estate sales, so this specialized knowledge can be helpful.
The Bottom Line
Probate sales can be a good option if you’re looking for a bargain, but they also come with a number of added risks and fees when compared to a traditional home sale. If you’re considering buying a house that’s in the probate process, make sure to enlist an experienced probate attorney or real estate agent to help guide the way. You should also be prepared for a lengthy waiting period before you can close on the home.
The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.
National Association of Realtors: "What Is a Probate Sale? A Home You'll Have to Win in Court." Accessed Feb. 12, 2020.
Regency Real Estate Brokers: "Should Buyers Consider a Probate Sale?" Accessed Feb. 12, 2020.