If you’re an investor, probate real estate listings can be a good opportunity for investing. A probate listing occurs when a person passes away and does not have a will directing the distribution of their assets. In a situation like this, their estate, including their real estate, typically enters probate.
What is probate in real estate?
The term “probate” refers to the administration of an estate by a court. A property enters probate when the owner dies without a will. In other cases, the deceased may have had a will but the property in question isn’t clearly bequeathed to any person or organization. A probate sale can also occur when the deceased had substantial debts that can only be repaid through the sale of their real estate.
There’s an art to finding and closing on probate real estate deals. While properties in probate can offer the opportunity to purchase a property below its market value, you’ll also need to do your research on probate legal processes in the area where the property is located, as the laws pertaining to probate sales vary from state to state. Investors who pursue these types of listings should be prepared to exercise patience, as closing on a property in probate can be a longer process than a traditional transaction.
While certain aspects of this process are the same as in a traditional real estate transaction, there are some key differences and points that you should be aware of. Let’s look at the seven most important tips for buying a probate listing.
Understand Court Regulations and Processes
Court regulations are the first thing you must understand about probate real estate. These requirements vary based on what state you are in and the unique circumstances of each case. For example, the court may sometimes handle all offers made on a listing, or it may allow the estate’s representative to oversee the sale in other cases. Learn about the legal requirements in your state and the general timelines for closing on a probate listing before you decide to start investing in probate properties.
In general, a probate sale follows these steps:
- Authorization -The court authorizes a real estate agent to represent the seller of the property.
- Pricing – Based on consultations with the real estate agent and the estate, the court sets a price for the property.
- Receiving offers – Once the price has been set, buyers can make their offers.
- Offer approval – Once the estate decides to accept an offer, the court holds a hearing to determine whether to approve of the offer. Prior to the hearing, the family of the deceased is notified of the impending sale and can approve or object to the offer.
Probate listings are on the MLS
There is a common misconception that probate listings are not listed on the MLS. While some houses in probate may find a buyer without ever being listed on the MLS, that’s not always the case. Most probate properties are listed on the MLS, so determined investors need to be resourceful to find probate listings before they’re listed on the MLS.
Learn how to find probate listings
Finding probate listings may seem like a relatively straightforward task that can be accomplished by looking online. Once a property in probate appears online, however, it has probably been on the market for a while.
To get a head start on the competition, the best way to find probate listings before they’re listed on the MLS is to use a lead generation platform. This program works by gathering data across from multiple sources and presenting it to users in a streamlined, easy-to-navigate manner. This gives you the ability to see the probate list in your area and the corresponding contact information and geographical details. This information can help you connect with leads more quickly and be amongst the first potential buyers to make an offer.
Have realistic expectations
Investors who are looking for probate listings need to maintain realistic expectations. Just because a property is in probate does not mean that the representative of the estate will readily accept an offer below market value. While that can happen in situations where the property is distressed or there’s an imminent need to sell the property, many probate listings are in good condition and simply entered probate due to the absence of a will. In situations like that, the representatives of the estate do not have an incentive to sell below market value.
Less seasoned investors may expect that once their offer is accepted, the transaction will run quickly and smoothly. That’s often far from the case. The buying process typically takes more time to close due to the lengthy approval process required by the court. If there’s disagreement amongst the heirs on whether or not to sell, or some other critical decision, this can add even more time to the probate process.
Choose properties carefully
Less seasoned investors may find a heavily discounted probate listing and jump at the opportunity to invest, but you should remember that a low price doesn’t necessarily mean it’s a good investment. The opposite may be true — a property that has been priced low may have severe disrepair or structural issues beyond the scope of a standard rehab project.
Fortunately, investors can gauge the extent of the property’s disrepair before buying. Just as a conventional property purchase has an inspection process, so does a probate property. The inspection will reveal whether the property is worth buying. Similar to a traditional sale, the inspection process will make the difference between moving forward or canceling the sale. Once you have the inspection results, you’ll know whether this is a worthwhile investment or if the necessary repairs make it a non-starter.
If you discover that the property needs extensive repairs, you don’t necessarily have to walk away. You could determine the property’s after repair value (ARV) and amend your offer based on that.
Learn how to communicate with the estate
Drafting a compelling probate listing offer is the sixth skill you need to hone. Before doing so, you should revisit your state and local requirements and any unique requirements of the case. After reviewing this information, you can proceed to draft an offer on a probate listing.
In most cases, prospective buyers must accompany their offer with a 10% deposit. The estate representative or the probate judge will review the offer and accept, counter, or reject. In many cases, this is done through a real estate agent who has been hired to represent the property and its estate.
Always make sure that your communication with the estate is tactful and respectful. Losing a loved one is an extraordinarily emotional experience, so if you try to pressure the seller, that can easily backfire and the deal can go away.
Exercise Patience
Purchasing a probate listing can take longer than traditional real estate transactions, so investors must be prepared to be patient throughout this process. While these listings are more likely to be sold below market value, this isn’t a get-rich-quick scheme. Savvy investors can indeed turn a significant profit on the right property, but that never happens overnight. Probate may entail disputes between family members and lengthy delays while waiting for court approval, so you should expect the closing to take at least six months.
Conclusion
Probate properties offer a unique opportunity for investors who are seeking discounted properties or want to build their portfolio. As we stated above, investors who pursue these types of properties need to educate themselves on their state’s probate procedures and requirements.
While all of the above tips are important, probably the most essential skill is to find probate listings before they’re posted on the MLS. Whether you’re a seasoned professional or brand new to real estate investing, you can take advantage of tools like a lead generation program that will help you see in-depth data about all probate properties in a given area.
