If you are searching for a property in Los Angeles, you might come across the term Probate Real Estate.
It is a property of a deceased person, who left the property without any living trust or a will. In such cases, the property is sold by the state under the supervision of the state court. Once the property is sold, the amount is used to pay off any liabilities on the property and distributed among the rightful heirs.
A Probate property, may it be a home or a shop or any other real estate, can be purchased at a lower rate than the market. It seems like a great deal as you are saving a good amount of money on buying the property, but it can cost you a lot more than you saved in during the documentation process.
Probate Real Estate is marketed just like any other property, and anyone can make an offer to buy the property. Typically, these properties are listed by the real estate agents who show the property to potential buyers.
If you are willing to get yourself involved in Probate Real Estate, then you should know all about it and how to deal with it. In this article, we will cover every aspect of Probate Real Estate within the Los Angeles region. So, let’s begin!
First, we need to know what Probate Real Estate is.
What is Probate Real Estate?
“Probate refers to a legal process that occurred when a person dies, and his/her property is left without a living trust. Whether or not a will is present, the absence of a living trust requires the appointment of an executor by an attorney. Court confirmation is required to be able to sell the property. In this process, if a will is present, it will be reviewed to check its validity and authentication. The court decides the value of the property and the amount is used to pay any liabilities remaining on the deceased person, and to distribute the assets to the beneficiaries named in the will or determined by the executor.”
Let’s have a look at some of the advantages and disadvantages of a Probate Real Estate:
Advantage and Disadvantages of the Probate Real Estate
Here’s a list of all possible advantages and disadvantages of a Probate Real Estate.
• The court values a Probate Real Estate on a fair market price. These properties are valued lower than the market value.
• Probate Real Estate is a good option for investing money. If you are not in a hurry to move into your new house or opening up a shop, then you can invest in Probate Property to save money.
• A Probate Real Estate is not inspected before putting out in the market, and it may have unknown defects which cannot be seen without having a detailed property inspection.
• No contingencies are allowed for a Probate Real Estate
• It takes way more time to complete the documentation process for a Probate Real Estate
• A person who is buying a Probate Real Estate will have to pay extra fees like legal charges, appraisal fees, and many other expenses.
• Not all estate agents can list a Probate Real Estate. Many such properties need to be listed by court-authorized estate agents only.
Now, let’s move on to the next part and see how a Probate property sales work.
How Do Probate Property Sales Work?
Let’s start with the basics first. You need to know that there are two types of Probate sales.
1. Auction based Probate Sale
In such a scenario, an auction is arranged by the court on the property for sale. Despite having an auction, the sale of the property is subject to the confirmation of the court and can be overbid in the court.
2. Offer based Probate Sale
In this scenario, the property is listed by an estate agent, who show the property to potential buyers. The buyer then needs to make an offer on the property, which is subject to the court confirmation and can be overbid in the court.
Important Note: Before you get into it, let us clear that the Probate Property process is more complex and time-consuming. In less time, you may be able to find properties that make sense. Regular buyers are generally scared off from such complex and lengthy legal processes. If you still want to go with a Probate Real Estate, then here are the steps that you should know about before starting the process. Keep this in mind that the Probate sales process varies from state to state, but it’s a bit more complicated than a traditional home sale. The steps explained below are specifically for Los Angeles and for offer based Probate sale.
The process starts after you make an offer via an estate agent.
Step # 1: Inspection Contingency and the Final Offer
When you make an offer to the real estate agent, they choose the highest bidder for further proceedings. The first thing you should do is to add an inspection contingency (the only contingency allowed on a probate sale is a basic inspection, and you cannot ask for financing contingency). The inspection is needed to check things like the foundation, foundation bolting, plumbing, flooring, roof conditions, insulation, and electrical wiring. You may found limited defects in which you can get repaired. But what if there’s an unrepairable defect is present in the house. Or, the repair may cost you a lot of money.
An inspection contingency helps you to feel confident about your offer. Once you are fully satisfied, you can increase the offer slightly against the court. If you have done your homework and already estimated the possible repair or construction cost, monthly/yearly cost of the property, and overage cost, then you would stand more firmly on your offer without fearing if the court might outbid your offer.
Step # 2: Apply for a Court Date
After you have made your mind on the offer, then it’s time to apply for a court date. First, you need to sign the deposit check and hand it over to the broker, who will fill out the paperwork and sent it for a court date. You will get the court date within two weeks. Keep this in mind that other buyers can still make a bid against yours in the court. The bid needs to be at least 5% + $1000 above your bid. If you have done your homework and made the best offer on the house, then you don’t have to worry as there is a small difference in the regular property prices and Probate properties. If you have made a lower offer, you will see more buyers will be overbidding your offer. But many times, people without any inspection report and complete valuation of the property feel less confident in raising the bid. Hence, the point is that you need to do the complete costing before heading toward the court.
Step # 3: Court Confirmation Hearing
On the court date, you will need to go to the court for a confirmation hearing. Once all the bidders gathered, the broker will ask to see every bidder check. If any of the bidders don’t have the deposit check, they won’t enter the courtroom. Now, the judge will lines up all bidders in front of his desk and takes down everyone’s names one by one. Every bidder, upon calling on his/her name, will have to present their certified deposit check to the probate attorney prior to being allowed to bid. Once the Judge has called every one, the attorney will list the accepted price and asks if anyone wants to bid the “overbid” amount. The bid should be accepted offer price + 5% more + $1000. All the bidders will raise their hands if they agree to the price. Those bidders who don’t agree with the price will ask to leave the courtroom, and the bidding process will end for them.
The real game will start now as the bids will rise by $5,000 from there, and bidders dropped off like flies. In most cases, an investor sends more than one bidder to keep the bidding in his favor. When it is finally down to two bidders, the final offer will be called out. The bidder to agree to this offer will get the court confirmation. In LA, the property prices jump rocketing like never before.
If you are the lucky bidder whose offer is being confirmed by the court, you will not be asked to submit any paperwork at that time. The selling agent will fill out a check for the probate attorney to pay the deposit amount.
Step # 4: Open an Escrow
After step # 3, all the processes will be the same as buying any regular property. The Escrow Company will send all the paperwork to fill out, including the insurance papers. You will need to open an Escrow account to process insurance. All the liens will need to be paid off with the sale before you can get the ownership of the property.
Step # 5: Closing the Sale
You need to pay off the final cost of the property to the title company for disbursement to close the deal. It may take 20 to 30 days after the confirmation of your offer from the court.
Is a Probate Property Worth it?
The entire scenario depends on what has more value to you. Is it the property you are eyeing for a long time or the money? As mentioned earlier, Probate property dealings take a long time with a complicated legal procedure. No matter if it is an auction-based or offer-based probate sale, in both cases, your deposit amount will be tied up with the bank until the final offer is confirmed. What if another property, better than the one you made an offer for, appears in the market? In that case, you won’t be able to make an offer on the next property as your amount is tied up with the court.
However, their certain situations where the property value is too low from the actual market price, and everything in front of it seems very small. Similarly, if you have your heart on something, you would want to get it at any cost. If the property is near to your heart in terms of its locations, neighborhood, or fine structure, it will not be an issue for you to wait. Dealing with Probate property is all about time and money. If you have both, LA is filled with many Probate Properties you can invest in. The prices started from $400,000 to millions.
We hope that you have found this article helpful regarding the questions you have in your mind about Probate Real Estate. Do let us know your feedback in the comment section below.