The process of selling real estate through probate or trust is a court-regulated series of steps that must be carefully monitored and managed. Deadlines are unforgiving, documentation is specialized and the court’s oversight must be honored throughout the marketing, offers, negotiations and sale of the property.
In addition to the personnel of the court, the sale generally involves the Executor or Administrator of the estate, the attorney representing the estate, a real estate agent representing the seller (the estate), one or more buyers who place bids with the court, and those buyers’ real estate agents. Each of these individuals must follow the guidelines and deadlines of the court.
Because of the involvement of the court, probate and trust sales have a vocabulary all their own. They also involve various disclosure documents and contracts that are not used in other real estate transactions.
To help you understand the probate and trust sale process, here is a list of some of the steps involved in a typical transaction:
Appointment of the Administrator or Executor of the estate. In most cases, the decedent’s will names an Executor who is designated to handle the distribution of assets, including real property. If no Executor is named, if the named Executor is unwilling to serve, or if there is no will, the court appoints an Administrator to carry out these duties. The Executor or Administrator is the person who has the authority to list and sell the property; the sale cannot proceed until that person has been identified.
As provided in the Independent Administration of Estates, the Executor establishes a list price for the real property. The price takes into account the appraisal by the Probate Referee and is usually determined with the assistance of a real estate agent experienced in probate and trust sales. The property is then listed for sale through that agent/broker.
The real estate agent markets the real property to the public as aggressively as possible to attract the highest offer. This generally involves a number of approaches, including signage, newspaper advertising, listing on one or more real estate websites, and hosting open houses for other real estate agents and potential homebuyers. The real estate agent will also schedule appointments to show the property to interested parties who inquire directly.
While buyers of probate and trust real estate may be looking for a bargain, their range of offers are limited by the court. An accepted offer must be90% or more of the Probate Referee’s appraised value. Once a buyer is found, the real estate agent assists the seller in negotiating terms that are satisfactory to both parties.
When the property has an accepted offer, a Notice of Proposed Action is mailed to all heirs, simply stating the terms of the proposed sale. The heirs have 15 days to review the notice and pose any objections. If there are no objections, the sale may proceed without a court hearing.
If the Executor/Administrator does not have full independent powers under IAEA, or if one of the heirs poses an objection to the Notice of Proposed Action, notice of the sale must be published in a generally distributed local newspaper (unless the will does not mandate such action).
The attorney for the estate then applies for a court date (the “confirmation hearing”) when the sale will be executed. The court date is usually within 30 to 45 days of the date the application is filed. A copy of the application and details concerning the sale are mailed to all interested parties.
Even after the court date has been set, the real estate broker should continue to show the property and advertise the home to potential buyers in the hope of securing an “over-bidder” and thereby raising the sale price.
During the court confirmation hearing, the previously accepted bid may be overbid by another interested party. In such a case, the overbidding party must appear at the hearing with a cashier’s check (no personal checks accepted!) in an amount totaling at least 10% of the minimum overbid price in order to successfully overbid. The minimum overbid is determined by the following formula: 10% of the first $10,000 plus 5% of the balance of the accepted offer.
EXAMPLE: A property is listed at $200,000. The accepted offer is $175,000. The minimum overbid is calculated as follows:
.10 x $10,000 $1,000
+ .05 x $165,000 $8,250 $9,250
+ Accepted offer $175,000
Minimum overbid $184,250
Cashier’s check for 10% $18,425
If there is more than one overbidder, the highest bid ‘wins.’ The winning bidder gives their cashier’s check to the Executor/Administrator and escrow is opened. Escrow will close approximately 30 to 45 days from the court hearing or sooner.