Probate (in this case, a court-confirmed probate sale) is a legal process and to truly understand it the advice of an attorney is paramount. That said, I am often asked by buyers “What is a probate?” and I thought I would try to shed a little light on the subject.
Broadly speaking a property is sold through probate when the owner of a property passes away and the property is to be sold while the will is still under probate (being reviewed by the court). The property is marketed in the hopes of finding a buyer. When an offer is received with the required 10% deposit, it is given to the probate court and a court date is set. On the day of the court hearing, other potential buyers are given the opportunity to bid against the existing offer by offering the “First Overbid” of 5% plus $500 over the existing offer (let’s say the existing offer is $100,000; the first overbid will then be $100,000 * 1.005 = $105,000 + $500 = $105,500). The judge sets the incremental amount of the following bids ($1000, for instance). In other words, the next bid in this example would be for $106,000 ($105,000 + $1,000).
It is important to keep in mind that the probate sale process is not like a normal sale (in which a buyer buys from a seller with all the normal warranties and disclosures). The key thing here is that the 10% deposit is at risk when a buyer makes an offer, and it is up to the buyer to understand the value and condition of the property.
Let’s say you plan to make an offer, and you expect to be borrowing to finance a portion of the purchase amount. If the court accepts your offer, and you are then unable to secure financing, your 10% deposit may be lost. In our example, that would be a minimum of $10,000—a significant loss for most people. Truly understanding these risks is why the probate attorney is so important—certainly for the seller, but also for the buyer.
Give me a call if you have questions or if you’d like the names of some outstanding probate attorneys in the San Francisco area.