California Probate Deposits

California Probate Deposits: Is a 10% Deposit Mandatory?

 

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California Probate Deposits: Is a 10% Deposit Mandatory?

Dear Phyllis,

Several months ago, my wife and I submitted an offer on a probate property listed at $925,000. We knew we faced competition, so we increased our offer to $940,000. The seller countered and required a 10% earnest money deposit, which raised our escrow deposit from $28,200 to $94,000.

We did not fully understand the probate process, so we followed our agent’s advice. He explained the counteroffer to us and pointed out that the $94,000 would stay tied up in escrow for several months, so we decided not to accept those terms.

We later learned the home sold for $910,000. Our agent contacted the seller’s representative and found that the seller accepted a lower offer because that buyer agreed to the larger deposit requirement. I do not understand how this process benefits the seller or how it can be considered fair. Can you offer some guidance?

Disgruntled

Dear Disgruntled,

In some instances, the estate’s attorney will require a ten percent deposit for Los Angeles probate sales requiring confirmation from the court. After the buyer removes all contingencies, this deposit becomes non-refundable, and a court date to confirm the sale is requested. Typically, the court date is about six weeks after the request (it could be more or less depending on the court’s calendar). At the appointed time in court, other potential buyers may outbid the (in escrow) price. The overbid amount is a complicated formula, but roughly five percent more than the original buyer’s agreed-upon selling price.

To recap: the buyer has opened escrow and received loan approval. They have conducted their physical inspection and, when applicable, negotiated any credits. Approximately six weeks later, the buyer goes to court with their Realtor, where other buyers can appear and overbid their price.

If the original buyer wishes to continue the bidding process, it can go back and forth with the original buyer and any other bidders. The overbid increments are established at the judge’s discretion. There may or may not be overbidders.

In your situation, you would have exited the home-buying market once you removed contingencies. At that point, the court would set a sale date, and your $94,000 deposit would become non-refundable. Consequently, you would remain in escrow, waiting and hoping the court confirms the sale. Therefore, I understand why you hesitated to move forward with a 10% deposit requirement.

Typically, the 10% deposit is a court suggestion, not a strict requirement. The estate’s attorney ultimately decides whether to enforce it. In my experience handling probate listings, most attorneys do not require a 10% deposit. They usually accept the more standard 3% deposit at the opening of escrow.

A 10% deposit is not a reasonable expectation for many buyers. As a result, it often discourages offers and can reduce overall demand, sometimes leading to a lower final sales price.

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