Would you be interested in acquiring a house, condo or other desirable real estate with little or no competition from other buyers? Or perhaps you are a real estate agent looking for an endless source of listings from sellers who are motivated to sell?
Often-overlooked sources of properties for sale, frequently at below-market prices, are probate properties.
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Probate property bargains arise when the owner has died and the heirs don’t want the property or the deceased left large debts, which must be paid from the sale of the property.
Usually, these properties become available after the deceased’s estate has passed through the local probate court, frequently six months to a year or longer after the owner died. By then, the heirs and the estate executor or administrator are often anxious to close the estate, get their money and move on.
Probate is not necessary, however, if the deceased wisely either held title (a) in a revocable living trust, or (b) as joint tenants with right of survivorship (presuming there is a surviving joint tenant to receive the title).
WHY ACQUIRE A PROBATE PROPERTY? Each year there are approximately six million U.S. probate court proceedings. Of course, not all these probates involve real property. In some states, small estates below $100,000 are exempt from probate court proceedings.
The primary reason to acquire a probate property is to purchase at a below-market bargain price, either to live in as a principal residence or resell it for a profit. As James G. Banks says in his book “Creating Wealth Through Probate” (available in stock or by special order at local bookstores, public libraries and www.Amazon.com), “Exposure to the real estate marketplace is the enemy.” Because probate sales usually receive very little publicity, they often lead to bargain realty purchases.
Benefits of acquiring probate property include (a) the heirs and/or estate executor are usually motivated to sell to pay the deceased’s bills and distribute the cash to the heirs; (b) limited competition from other buyers to drive the sales price up; and (c) because the heirs didn’t pay anything for their inheritances, they usually don’t demand top dollar (although some heirs can be very greedy).
Possible disadvantages of buying probate properties include (a) “as is” sales with no warranties and the estate doesn’t have to pay for any repairs (although this is negotiable); (b) in some situations a property sale is contingent upon court confirmation, often increasing competition from other buyers; (c) many estates won’t allow buyers to make purchase offers contingent on satisfactory professional inspections; and (d) some estate executors and administrators elect to offer the property at a public auction sales, thus driving the price up.
FINDING PROBATE PROPERTIES TAKES WORK. Real estate agents seeking probate listings, and buyers desiring to purchase probate properties must be diligent.
Following the daily newspaper obituary notices is a key method and then following up to check public ownership records to learn if the deceased owned real estate.
Another method is to read the local legal newspaper notices to creditors. Most states require estates to publish a legal notice giving creditors several months to submit their claims. This is an opportunity for realty agents and buyers to check with the estate attorney to see if any real estate will be sold by the estate.
HOW TO PROFIT FROM PROBATES. Because the administration of probate estates is a local matter, exact sales procedures vary. However, there are four major opportunities to acquire probate properties:
1. PURCHASE FROM THE ESTATE AT A DISCOUNT. Depending on the deceased’s will, if any, and local probate court procedures, it is often possible to buy at a substantial discount the deceased’s properties direct from the estate executor or administrator.
If the heirs want to keep the probate property, they are entitled to do so if there are no estate debts to be paid. However, when the deceased left more debts than cash resources, it is often necessary to sell the deceased’s real estate to pay debts and then distribute the remaining cash to the heirs.
2. BUY FROM THE HEIRS AFTER THEY RECEIVE THE PROPERTY. When the deceased’s will specifies which heirs are to receive real estate, those heirs would often prefer to have cash, especially if they live far away and have no immediate use for the property.
This situation creates an excellent purchase opportunity for home buyers and investors. When the heirs can be offered a quick sale, receiving top dollar often becomes unimportant.
3. PURCHASE AT A PROBATE-PROPERTY COURT SALE. Depending on the circumstances, the probate court supervising distribution of the deceased’s assets may order a court sale of the property. The result is the property is often listed for sale with a real estate agent. Sometimes, a buyer’s high bid must be confirmed by the court where other buyers have the opportunity to raise the bid price.
4. SELLERS, NOT BUYERS, BENEFIT FROM PUBLIC AUCTIONS. Large probate properties, especially farms and difficult-to-sell properties, are often sold at public auctions. With proper marketing, the result can be heavy bidding for top sales prices. Unless there are few other bidders, purchasing at an auction is usually not the best way to obtain a bargain price.
WORK WITH THE ESTATE ATTORNEY. Smart realty agents who want to list probate properties for sale, and buyers who want to purchase such properties at below-market value prices have learned to work with the estate attorney for mutual benefit. If you express an interest in a probate property, the estate executor or administrator will probably notify you first when the estate is ready to sell.
A little known fact is an estate can usually carry back mortgage financing for the benefit of the heirs. This greatly eases the financing burden and, when the heirs see how much money they will receive each month, is advantageous for all parties. Seller financing is often a great way to equitably distribute an estate when there are several heirs, none of whom wants to keep the real property in the estate.
SUMMARY: Probate properties are a little-known source of profitable purchases. Buyers and real estate agents can benefit by understanding local probate procedures. But it takes work and persistence to track these property bargains. More details are in my special report, “Probate Property Profit Secrets Revealed,” available for $5 from Robert Bruss, 251 Park Road, Burlingame, Calif., 94010, and by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com.
(For more information on Bob Bruss publications, visit his
Real Estate Center).
