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The ins & outs of probate sales
Dear Phyllis,
I may be making an offer on a probate property. My real estate agent suggested that I educate myself on the process. Are there any pitfalls involved in buying a probate home? Can you explain the procedure of the court overbid? What are the bidding increments? How often do overbids occur? What else can you tell me about probates? Max
Dear Max,
First, I recommend that you work with a Realtor who understands probate transactions and clearly explains the process. Because the seller is deceased, you will typically not receive standard seller disclosures. Next, hire a qualified home inspector to thoroughly evaluate the property. In many cases, the inspector will recommend additional specialist inspections, such as for the chimney or foundation. Finally, once the judge confirms the sale, your purchase money deposit is at risk. Therefore, complete and approve all inspections before the court confirmation hearing to protect your position.
When you go to court, the first overbid is a somewhat complicated formula; it is approximately 5% (your Realtor should explain the precise calculation to you). Assume the seller accepts your $600,000 offer. Next, the court sets the first overbid at approximately $630,000. At that point, any buyer can appear in court and submit a bid at that level for an “as is” sale with no contingencies.
If a bidder enters at $630,000, the bidding continues. You and any other interested buyers can then submit additional bids. The judge sets the next increment, which may be $500, $5,000, or any amount the court determines. This process continues until no further bids appear. Finally, the highest bidder opens escrow, and the seller’s agent receives the deposit.
As for the likelihood of overbidding at the court confirmation hearing, current market conditions play a major role. Because inventory remains low, overbidding becomes more likely. However, the outcome still depends on your offer price and the initial overbid amount. Therefore, your Realtor should review the specific situation and provide guidance based on comparable activity.
Related Post: Probate Deposits
